PROSPECTUS
Société Française du Radiotéléphone – SFR
(a société anonyme established with limited liability in the Republic of France)
€300,000,000
5 per cent. Bonds due 2014
Issue Price : 100 per cent.
This prospectus constitutes a prospectus (the "Prospectus") for the purposes of Article 5.3 of the Directive 2003/71/EC (the "Prospectus Directive") and the relevant implementing measures in the Grand Duchy of Luxembourg. This Prospectus contains information relating to the issue by Société Française du Radiotéléphone – SFR S.A. ("SFR" or the "Issuer") of its €300,000,000 aggregate principal amount of Fixed Rate Bonds due 2014 (the "Bonds" and each a "Bond"). The Bonds will be issued outside the Republic of France and will mature, unless previously redeemed or purchased and cancelled, on the Interest Payment Date (as defined in "Terms and Conditions of the Bonds – Interest") falling on 9 July 2014 (the "Maturity Date"), subject as provided below, at their principal amount, as set out in "Terms and Conditions of the Bonds – Redemption and Purchase – Redemption at Maturity". Interest on the Bonds is payable annually on 9 July in each year, commencing on 9 July 2010 (the "Interest Commencement Date"), at a rate equal to 5 per cent. per annum, all as more fully described in "Terms and Conditions of the Bonds – Interest". Application has been made to the Luxembourg Stock Exchange for the Bonds to be listed on the official list and traded on the regulated market (within the meaning of the Directive 2004/39/EC) of the Luxembourg Stock Exchange. The Bonds will be issued on 9 July 2009 (the "Issue Date") in the denomination of €50,000 each and will at all times be represented in book entry form (dématerialisé), in compliance with Article L.211-3 of the French Code monétaire et financier, in the books of the Account Holders (as defined in "Terms and Conditions of the Bonds – Form, Denomination and Title"). No physical documents of title will be issued in respect of the Bonds. The Bonds will, upon issue, be inscribed in the books of Euroclear France S.A. ("Euroclear France") which shall credit the accounts of the Account Holders including the depositary bank for Clearstream Banking, société anonyme ("Clearstream, Luxembourg") and Euroclear Bank S.A./N.V. ("Euroclear"). The Bonds have been accepted for clearance through Euroclear France, Euroclear and Clearstream, Luxembourg. The Bonds have been assigned a rating of BBB+ by Fitch Inc. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension, reduction or withdrawal at any time by the relevant rating agency.
Lead Manager SOCIETE GENERALE CORPORATE & INVESTMENT BANKING
The date of this Prospectus is 7 July 2009. This Prospectus is to be read and construed in conjunction with all documents which are deemed to be incorporated herein by reference. See "Incorporation by Reference" below.
See "Risk Factors" of this Prospectus for certain information relevant to an investment in the Bonds.
The Bonds have not been and will not be registered under the U.S. Securities Act of 1933 as amended (the "Securities Act") or any state securities laws. The Bonds may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) absent registration or pursuant to an exemption from registration under the Securities Act. The Bonds are being offered and sold in offshore transactions outside the United States in reliance on Regulation S under the Securities Act ("Regulation S"). For a description of this and certain further restrictions on offers, sales and transfers of the Bonds and the distribution of this Prospectus, see "Subscription and Sale".
This Prospectus has not been approved by, or registered or filed with, the French Autorité des Marchés Financiers ("AMF"). The Bonds may not be offered or sold to the public in France and neither this Prospectus, nor any other offering material or information contained therein, may be released, issued or distributed or caused to be released, issued or distributed to the public in France, or used in connection with any offer for subscription or sale of Bonds to the public in France. Such offers, sales and distributions shall be made in France only to persons providing investment services relating to portfolio management for the account of third parties (personnes fournissant le service d'investissement de gestion de portefeuille pour compte de tiers) and/or qualified investors (investisseurs qualifiés) other than individuals referred to in article D.411-1- II-2 of the French Code monétaire et financier, all as defined in, and in accordance with, articles L.411-1, L.411-2 and D.411-1 to D.411-3 of the French Code monétaire et financier. Persons into whose possession this Prospectus comes must inform themselves about and observe any such restrictions. This Prospectus does not constitute, and may not be used for or in connection with, an offer to any person to whom it is unlawful to make such offer or a solicitation by anyone not authorised to so act.
Subject as set out below, the Issuer accepts responsibility for the information contained in this Prospectus and confirms that this document contains all information with respect to the Issuer, the Issuer and its subsidiaries taken as a whole (the "SFR Group" or the "Group") and the Bonds which is material in the context of the issue and offering of the Bonds; the statements contained in it relating to the Issuer, the Group and the Bonds are in every material particular true and accurate and not misleading; the opinions and intentions expressed in this document with regard to the Issuer and the Group are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions.
Having taken all reasonable care to ensure that such is the case, the information contained in the Prospectus is, to the best of the Issuer's knowledge, in accordance with the facts and contains no omission likely to affect its import. There are no other facts in relation to the Issuer, the Group or the Bonds the omission of which would, in the context of the issue and offering of the Bonds, make any statement in this document misleading in any material respect or be likely to affect its import.
- 2 - All reasonable enquiries have been made by the Issuer to ascertain such facts and to verify the accuracy of all such information and statements. The Issuer accepts responsibility accordingly.
In connection with the issue and offering of the Bonds, no person has been authorised to give any information or to make any representation other than those contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer or the Lead Manager (as defined in "Subscription and Sale"). Neither the delivery of this Prospectus, nor any sale made in connection with the issue of the Bonds, shall, under any circumstances, create any implication that there has been no change in the affairs or the financial position of the Issuer or the Group since the date hereof, or that the information in this Prospectus is correct or complete as of any time subsequent to its date, or if different, the date indicated in the document containing the same.
This Prospectus does not constitute, and may not be used for the purposes of, an offer or solicitation by anyone to any person to whom it is unlawful to make such offer or solicitation.
Neither this Prospectus nor any other information supplied in connection with the Bonds is intended to provide the basis of any credit or other evaluation and nor should any of them be considered as a recommendation or a statement of opinion (or a report on either of those things) by the Issuer or the Lead Manager that any recipient of this Prospectus or any other information supplied in connection with the Bonds should purchase any Bonds. Each investor contemplating purchasing any Bonds should make its own independent investigation of the financial condition and affaires, and its own appraisal of the creditworthiness of the Issuer. Neither this Prospectus nor any information supplied in connection with the Bonds constitute an offer or invitation or on behalf of the Issuer or the Lead Manager to any person to subscribe for or purchase any Bonds.
No action has been or will be taken by the Issuer, the Lead Manager or any other person that would permit a public offering of the Bonds or the distribution of this Prospectus or any other offering material relating to the Bonds, in any country or jurisdiction where regulatory action for that purpose is required.
The distribution of this Prospectus and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Lead Manager to inform themselves about and to observe any such restrictions.
In particular, there are restrictions on the distribution of this Prospectus and the offer or sale of the Bonds in the United States, the United Kingdom, France, Italy and the Netherlands (see "Subscription and Sale").
- 3 - Unless otherwise specified or the context requires, references herein to "€" and "euro" are to the single currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community. In this Prospectus, any discrepancies in any table between totals and the sums of the amounts listed in such table are due to rounding. References to "billions" are to thousands of millions.
Unless otherwise indicated, statements in this Prospectus relating to market share, ranking and data are derived from management’s estimates based on independent industry publications, reports by market research firms or other published independent sources.
This Prospectus includes forward-looking statements. All statements other than statements of historical facts included in this Prospectus, including, without limitation, those regarding the Issuer's financial position, business strategy, plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Issuer, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Issuer's present and future business strategies and the environment in which the Issuer will operate in the future. The Issuer expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Issuer's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
- 4 - TABLE OF CONTENTS
RISK FACTORS ...... 6
INCORPORATION BY REFERENCE...... 13
TERMS AND CONDITIONS OF THE BONDS...... 16
USE OF PROCEEDS ...... 27
DESCRIPTION OF THE ISSUER...... 28
SUBSCRIPTION AND SALE...... 54
GENERAL INFORMATION...... 57
- 5 - RISK FACTORS Prior to making an investment decision, prospective purchasers of the Bonds should consider carefully, in the light of the circumstances and their investment objectives, the information contained in this entire Prospectus. Prospective purchasers should nevertheless consider, among other things, the risk factors set out below.
1. FACTORS THAT MAY AFFECT THE ISSUER'S ABILITY TO FULFIL ITS OBLIGATIONS UNDER THE BONDS
The ability of the Issuer and its subsidiaries taken as a whole (SFR Group) to meet its obligations under the Bonds will be ultimately dependent on its financial situation. Certain specific considerations include the following:
SFR Group may suffer reduced profits as a result of intense competition in the French telephony market.
SFR Group operations are strongly regulated by the French telecommunication authority (Autorité de Régulation des Communications Electroniques et Postales - Arcep).
The European regulatory landscape in the electronic communications sector will change significantly under the “telecom package”, the European process to amend the existing telecom directives. On November 13, 2007, the European Commission proposed directives that will be debated before the European Parliament and within the Council of Ministers in 2008 and which promulgations are expected no sooner than 2009/2010 and could intensify competition in the French telecommunication market. On November 27, 2008, the European Council of Ministers met in order to reach an agreement on a joint position concerning the review of European Community laws impacting the telecom sector (following proposals from the European Commission published more than a year ago and pursuant to the European Parliament’s vote on these projects on September 22, 2008)
Certain legal provisions of the Economic Modernization Act (“LME”, August 2008) have an impact on SFR’s operations:
In order to facilitate progress on territorial coverage in third-generation mobile radio broadcasting, after public consultation, and no later than six months after promulgation of the law, the ARCEP is expected to determine the terms and conditions under which 3G network facilities sharing will be implemented and the population coverage threshold above which such sharing is made; Each operator will disclose the list of new gray areas covered during the year and communicate to the ARCEP those areas it anticipates covering; The future of TV: an article setting forth the information to be addressed to consumers on the terms and conditions and time schedule for the elimination of analog television broadcasts; and A specific tariff offered to low-income individuals will be subject to an agreement entered into between the Government and mobile telephony operators.
- 6 - SFR Group is part of legal proceedings and legal actions that could have negative effect on the financial statements.
All the proceedings for which the resolution is pending before commercial courts and for which the management of SFR Group is in a position to determine the possible impact are provisioned for in the financial statements.
SFR is also facing legal actions under competition law for which the management is not in a position to determine the possible impact and therefore to record any provision in the financial statements. The outcome of any of these legal actions or any additional actions that may be initiated in the future could have a negative effect on the financial statements.
SFR Group conducts business only in France and therefore is not subject to risks such as fluctuations in currency exchange rates, restrictions of repatriation of capital, exposure to varying tax regimes and different legal standards and export controls or trade barriers that could have a negative affect profitability and cash flows.
SFR Group may not be able to retain or obtain required licenses, permits, approvals and consents.
SFR Group needs to retain or obtain a variety of permits and approvals from regulatory authorities to conduct and expand each of its businesses. The process for obtaining these permits and approvals is often lengthy, complex, unpredictable and costly. If SFR Group is unable to retain or obtain the permits and approvals - in particular, licenses to provide telecommunications services - SFR Group ability to achieve its strategic objectives could be impaired. The regulatory environment in which SFR Group businesses operate is complex and subject to change, and adverse changes in that environment could impose costs on SFR Group and/or limit its revenue.
Regulations regarding electromagnetic radiation or future claims with respect to electromagnetic radiation could have a negative effect on SFR mobile telephone revenues and operations.
The International Commission for Non-Ionizing Radiation Protection, an independent organization that advises the World Health Organization, has established a series of recommendations setting exposure limits from electromagnetic radiation from antennas. These regulations were driven by concern over a potential connection between electromagnetic radiation and certain negative health effects, including some forms of cancer. They were enacted into French law on 3 May 2002.
SFR complies with the regulations (Decree of 3 May 2002) concerning the limitation of public exposure to electromagnetic fields and endeavours to keep the public, local authorities and its landlords informed about the latest developments and regulations on this issue. SFR has also taken an active part in the activities of the French mobile operators' association (Association Française des Opérateurs Mobiles - AFOM) in order to enhance the dialog and transparency on this issue. In April 2004, AFOM and the association of French mayors agreed to a best practices guide for the installation of mobile phone masts, which anticipated most of the requirements of the July 2004 law on public health.
- 7 - With respect to base station antennas, health authorities concur that base station antennas are not harmful. In its memorandum No. 304, dated May 2006, « Base Stations and Wireless Technologies », the WHO concludes: “Given the very low levels of exposure and the results of research studies obtained to date, there is no supporting scientific element confirming any harmful effects of base stations and wireless networks on human health.”
Similarly, scientific research carried out on mobile phones over the last decade has not evidenced any risk to the health of users. Certain results have, however, raised questions which merit further investigation, and research in this field is still on-going.
SFR has been indicating the exposure levels provided by the manufacturers of the handsets it sells on its website and in its sales brochures since mid-2002 and on shelf displays in its outlets since early 2003.
In connection with its active attempts to promote scientific research on the effects of radiofrequencies on human health, with the support of the French ministry responsible for research and in partnership with other manufacturers, SFR made every effort during 2004 to set up a “Health and Radiofrequencies Foundation.” The mission of this foundation, officially recognized as beneficial to the general public in January 2005, is to define, promote and finance research programs on the effects of human exposure to the electromagnetic fields used in particular for electronic communications and to publish the knowledge acquired in these fields among professionals and the general public. In order to organize a study on society’s expectations with respect to research and information and the answers to be provided, the foundation has set up an advisory committee open to all stakeholders.
SFR cannot assure that future regulation will not have a negative impact on revenues and operations. SFR also cannot assure that claims, relating to electromagnetic radiation will not arise against SFR in the future and have a negative effect on revenues and operations. In addition, even the perception of possible health risks, could lead to reduced demand for SFR mobile telephony services and have a negative effect on revenues and operations.
SFR Group makes significant investments in networks and new technologies and anticipated benefits of the investments may not be realised.
SFR Group is presently making substantial investments in its networks and in new technologies such as UMTS, HSDPA etc.... Consumer acceptance of new technologies may be less than expected and will depend on a number of factors, including the availability and the quality of services. If the introduction of new technologies is delayed or failed, SFR Group may be unable to recoup its network investments.
Credit or corporate ratings may not reflect all risks.
One or more independent rating agencies may assign ratings to the Bonds. The ratings assigned to the Bonds by the rating agencies are based on the Issuer’s financial situation, but take into account other relevant structural features of the transaction, including, inter alia, the terms of the Bonds, and reflect only the views of the rating agencies. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed in this paragraph, and other factors that may affect the value of the Bonds. The ratings address the likelihood of full and timely payment to the Bondholders of all payments of interest on each
- 8 - interest payment date and repayment of principal on the final payment date. There is no assurance that any such ratings will continue for any period of time or that they will not be reviewed, revised, suspended or withdrawn entirely by the rating agencies as a result of changes in or unavailability of information or if, in the rating agencies' judgement, circumstances so warrant.
A credit rating and/or a corporate rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
2. FACTORS WHICH ARE MATERIAL FOR THE PURPOSE OF ASSESSING THE MARKET RISKS ASSOCIATED WITH BONDS
Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained or incorporated by reference in this Prospectus or any applicable supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact the Bonds will have on its overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds, including Bonds with principal or interest payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor's currency;
(iv) understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices and financial markets; and
(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
Risks related to the market generally.
Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:
The secondary market generally
Bonds may have no established trading market when issued, and one may never develop. If a market does develop, it may not be very liquid. Therefore, investors may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Bonds in Euro. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally
- 9 - in a currency or currency unit (the "Investor's Currency") other than Euro. These include the risk that exchange rates may change significantly (including changes due to devaluation of Euro or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the Euro would decrease (i) the Investor's Currency- equivalent yield on the Bonds, (ii) the Investor's Currency-equivalent value of the principal payable on the Bonds and (iii) the Investor's Currency-equivalent market value of the Bonds.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.
Risks related to the structure of the Bonds.
Bonds subject to optional redemption by the Issuer
An optional redemption feature of Bonds is likely to limit their market value. During any period when the Issuer may elect to redeem Bonds in accordance with Condition 4.2 ("Redemption for Taxation reasons"), the market value of those Bonds generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period.
An investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Bonds being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.
Market Value of the Bonds.
The market value of the Bonds will be affected by the creditworthiness of the Issuer and a number of additional factors.
The value of the Bonds depends on a number of interrelated factors, including economic, financial and political events in France or elsewhere, including factors affecting capital markets generally and the stock exchanges on which the Bonds are traded. The price at which a Bondholder will be able to sell the Bonds prior to maturity may be at a discount, which could be substantial, from the issue price or the purchase price paid by such purchaser.
Risks related to Bonds generally
Modification and waiver
The conditions of the Bonds contain provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Bondholders including Bondholders who did not attend and vote at the relevant meeting and Bondholders who voted in a manner contrary to the majority.
Change of law
The conditions of the Bonds are based on the laws of France in effect as at the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or
- 10 - change to the laws of France or administrative practice after the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to laws or administrative practices after the date of this Prospectus.
EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income, each Member State is required, from 1 July 2005, to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident in that other Member State; however, for a transitional period, Austria, Belgium and Luxembourg may instead apply a withholding system in relation to such payments, deducting tax at rates rising over time to 35%. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non- EU countries to the exchange of information relating to such payments.
Also with effect from 1 July 2005, a number of non-EU countries, and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident in a Member State. In addition, the Member States have entered into reciprocal provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident in one of those territories.
Taxation
Potential purchasers and sellers of the Bonds should be aware that they may be required to pay taxes or other documentary charges or duties in accordance with the laws and practices of the country where the Bonds are transferred or other jurisdictions. Potential investors are advised not to rely upon the tax summary contained in this Prospectus but to ask for their own tax adviser’s advice on their individual taxation with respect to the acquisition, sale and redemption of the Bonds. Only these advisors are in a position to duly consider the specific situation of the potential investor. This investment consideration has to be read in connection with the taxation sections of this Prospectus.
French Insolvency Law
The Bondholders will be grouped for the defence of their respective common interests in a masse, as defined in Condition 8.
However, under French insolvency law, as amended by ordinance n°2008-1345 dated 18 December 2008 which came into force on 15 February 2009, holders of debt securities are automatically grouped into a single assembly of holders (the "Assembly") in case of the opening in France of a safeguard (procédure de sauvegarde) or a judicial reorganisation procedure (procédure de redressement judiciaire) of the Issuer, in order to defend their common interests.
The Assembly comprises holders of all debt securities issued by the Issuer (including the Bonds) regardless of their governing law. The Assembly deliberates on the draft safeguard (projet de plan de sauvegarde) or judicial reorganisation plan (projet de plan de redressement) applicable to the Issuer and may further agree to:
- 11 - - increase the liabilities (charges) of holders of debt securities (including the Bondholders) by rescheduling and/or writing-off debts;
- establish an unequal treatment between holders of debt securities (including the Bondholders) as appropriate under the circumstances; and/or
- decide to convert debt securities (including the Bonds) into shares.
Decisions of the Assembly will be taken by a two-third majority (calculated as a proportion of the debt securities held by the holders attending such Assembly or represented thereat). No quorum is required on convocation of the Assembly.
For the avoidance of doubt, the provisions relating to the Representation of the Bondholders described in Condition 8 will not be applicable in these circumstances.
- 12 - INCORPORATION BY REFERENCE This Prospectus should be read and construed in conjunction with the following documents which have been previously published or are published simultaneously with this Prospectus and have been filed with the Commission de Surveillance du Secteur Financier at Luxembourg. Such following documents shall be deemed to be incorporated in, and to form part of, this Prospectus:
The annual report for 2008 (Rapport d’activité et de Développement Durable) (the "Annual Report 2008") and the financial reports (Rapports Financiers) for 2007 (the "Financial Report 2007") and 2008 (the "Financial Report 2008") of the Issuer (acting as the holding company of the SFR Group).
The consolidated financial statements of SFR for the years ended 31 December 2007 and 31 December 2008 were prepared in accordance with the International Financial Reporting Standards (IFRS) and the International Financial Reporting Interpretations Committee (IFRIC) interpretations as endorsed in the European Union (EU) with a mandatory application as at December 31, 2008. These standards and interpretations applied to SFR’s financial statements present no difference with the standards published by the International Accounting Standards Board (IASB).
So long as any of the Bonds are outstanding, this Prospectus and any document incorporated by reference herein will be available during usual business hours on any weekday (except Saturdays, Sundays and public holidays) for inspection and collection free of charge, at the specified office of the Paying Agents.
Any information not listed in the cross-reference list but included in the documents incorporated by reference is given for information purposes only.
- 13 - CROSS-REFERENCE LIST IN RESPECT OF INFORMATION INCORPORATED BY REFERENCE
Documents incorporated by reference and this Prospectus are available on the website of the Luxembourg Stock Exchange (www.bourse.lu).
SFR audited annual consolidated financial Financial Report 2007, page 16-26 statements for the financial year ended 31 December 2007
Balance Sheet relating to the above Financial Report 2007, page 17
Notes relating to the above Financial Report 2007, page 19-49
Accounting principles relating to the above Financial Report 2007, page 19-28
Audit Report relating to the above Financial Report 2007, page 7, 50-51
Income statement Financial Report 2007, page 16
SFR audited annual consolidated financial Financial Report 2008, page 11-49 statements for the financial year ended 31 December 2008
Balance Sheet relating to the above Financial Report 2008, page 12
Notes relating to the above Financial Report 2008, page 15-49
Accounting principles related to the above Financial Report 2008, page 15-21
Audit Report relating to the above Financial Report 2008, page 5, 50
SFR simplified organisational chart Annual Report 2008, page 10
- 14 - SFR subsidiaries included in its consolidated Financial Report 2008, page 49 group as at 31 December 2008
Information on the Group’s core business Financial Report 2008, page 8-15 operations in 2008 (including significant new products and activities) Annual Report 2008, page 7-8, 20-35
SFR current significant litigation Financial Report 2008, page 39
Income statement Financial Report 2008, page 11
- 15 - TERMS AND CONDITIONS OF THE BONDS
The terms and conditions of the Bonds will be as follows:
The issue outside the Republic of France of €300,000,000 5 per cent. Bonds due 2014 (the "Bonds") was authorised by the Conseil d'Administration of the Issuer on 19 December 2008, pursuant to a resolution of the Assemblée Générale adopted on 13 September 2007.
The Issuer will enter into a fiscal agency agreement (the "Fiscal Agency Agreement") to be dated 9 July 2009 with Société Générale Bank & Trust as fiscal agent, principal paying agent and Société Générale as Paris paying agent. The fiscal agent, principal paying agent, Luxembourg paying agent and Paris paying agent for the time being are referred to in these Conditions as the "Fiscal Agent", the "Principal Paying Agent" and the "Paying Agents" (which expressions shall include the Principal Paying Agent), respectively. Each of such expressions shall include the successors from time to time of the relevant persons, in such capacities, under the Fiscal Agency Agreement, and are collectively referred to as the "Agents". Certain statements in these Conditions are summaries of, and are subject to, the detailed provisions of the Fiscal Agency Agreement, copies of which are available without charge at the specified offices of the Paying Agents. Holders of the Bonds (the "Bondholders") are deemed to have notice of the provisions of the Fiscal Agency Agreement and are bound by, and entitled to the benefit of, those provisions which relate to their rights under the Bonds. References below to "Conditions" are, unless the context otherwise requires, to the numbered paragraphs contained in the terms and conditions set forth herein.
1. FORM, DENOMINATION AND TITLE The Bonds will be issued in dematerialised bearer form (au porteur) in the denomination of €50,000 per Bond. Title to the Bonds will be established and evidenced in accordance with article L.211-3 of the French Code monétaire et financier by book-entries (inscription en compte). No physical document of title (including certificats représentatifs pursuant to Article R.211-7 of the French Code monétaire et financier will be issued in respect of the Bonds.
The Bonds will, upon issue, be inscribed in the books of Euroclear France S.A. ("Euroclear France"), which shall credit the accounts of Account Holders affiliated with Euroclear France. For the purpose of these Conditions, "Account Holder" shall mean any financial intermediary institution entitled to hold, directly or indirectly, accounts on behalf of its customers, and includes the depositary banks for Clearstream Banking, société anonyme ("Clearstream"), and Euroclear Bank S.A./N.V. ("Euroclear").
Title to the Bonds shall at all times be evidenced by entries in the books of the Account Holders, and transfer of Bonds may only be effected through registration of the transfer in the books of Account Holders.
- 16 - 2. STATUS AND NEGATIVE PLEDGE 2.1 Status of the Bonds
The obligations of the Issuer in respect of the Bonds constitute direct, unconditional, (subject as provided in "Negative Pledge" below) unsecured and unsubordinated obligations of the Issuer and rank and will rank pari passu and without any preference among themselves and (subject to such exceptions as are from time to time mandatory under French law) equally and rateably with all other present or future unsecured and unsubordinated obligations of the Issuer.
2.2 Negative Pledge
So long as any of the Bonds remains outstanding (as defined in the Fiscal Agency Agreement), the Issuer will not create, incur or permit to subsist any mortgage, charge, pledge, lien (other than a lien arising by operation of law) or other security interest ("Security") over any of its business, property and assets present and future to secure any Relevant Debt unless simultaneously with or prior to the creation of such Security, its obligations under the Bonds (A) are secured equally and rateably therewith or (B) have the benefit of such other security or other arrangement as shall be approved by the Masse (as defined in Condition 8) pursuant to Condition 8.
For the purposes of this Condition, "Relevant Debt" means any present or future indebtedness in the form of, or represented by, bonds, notes, debentures, loan stock or other securities that, at the time of issue, are, or are intended to be, quoted, listed or ordinarily dealt in on any stock exchange, automated trading system, over-the-counter or other securities market.
3. INTEREST The Bonds will bear interest from, and including, 9 July 2009 (the "Interest Commencement Date") at the rate of 5 per cent. per annum (calculated on the principal amount of the Bonds), payable annually in arrear on 9 July of each year (each an "Interest Payment Date"), commencing on 9 July 2010.
Where interest is to be calculated in respect of a period which is equal to or shorter than an Interest Period (as defined below), the day-count fraction used will be the Actual/Actual-ICMA method being the number of days in the relevant period, from and including the date from which interest begins to accrue to but excluding the date on which it falls due, divided by the number of days in the Interest Period in which the relevant period falls (including the first such day but excluding the last). The period beginning on the Interest Commencement Date and ending on the first Interest Payment Date and each successive period beginning on an Interest Payment Date and ending on the next succeeding Interest Payment Date is called an "Interest Period".
Each Bond will cease to bear interest from the date on which it is to be redeemed, unless payment of the full amount due in respect of the Bond is improperly withheld or refused on such due date. In such event, such Bond shall continue to bear interest in accordance with this Condition (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant Bondholder and (b) the day after the Fiscal Agent has notified Bondholders in accordance with Condition 9 of receipt of all sums due in respect of all Bonds up to that day (except if and to the
- 17 - extent the subsequent payment to the relevant Bondholders is not made in accordance with these Conditions).
Interest payments will be made subject to, and in accordance with, the provisions of Condition 5.
4. REDEMPTION AND PURCHASE The Bonds may not be redeemed other than in accordance with this Condition 4 or Condition 7.
4.1 Redemption at Maturity
Unless previously redeemed or purchased and cancelled, the Bonds will be redeemed in cash at their principal amount (i.e. €50,000 per Bond) on 9 July 2014 (the "Maturity Date").
4.2 Redemption for Taxation Reasons
(i) If, by reason of change in French law, or any change in the official application or interpretation of such law, becoming effective after the Issue Date, the Issuer would on the occasion of the next payment of principal or interest due in respect of the Bonds, not be able to make such payment without having to pay additional amounts as specified under Condition 6, the Issuer may, on an Interest Payment Date, subject to having given not more than sixty (60) nor less than thirty (30) days’ prior notice to the Bondholders (which notice shall be irrevocable), in accordance with Condition 9, redeem all, but, not some only, of the Bonds at their principal amount with accrued interest (if any) to the date set for redemption provided that the due date for redemption of which notice hereunder may be given shall be no earlier than the latest practicable date on which the Issuer could make payment of principal and interest without withholding for French taxes or, if such date has passed, as soon as practicable thereafter.
(ii) If the Issuer would on the next payment of principal or interest in respect of the Bonds be prevented by French law from making payment to the Bondholders of the full amount then due and payable, notwithstanding the undertaking to pay additional amounts contained in Condition 6, then the Issuer shall forthwith give notice of such fact to the Fiscal Agent and the Issuer shall upon giving not less than seven days’ prior notice to the Bondholders redeem all, but not some only, of the Bonds then outstanding at their principal amount plus any accrued interest to the date set for redemption provided that the due date for redemption of which the Issuer could make payment of the full amount of principal and interest payable without for French taxes or if such date has passed, as soon as practicable thereafter.
4.3 Purchases
The Issuer may, in accordance with all applicable laws and regulations, at any time purchase Bonds in the open market or otherwise, without any limitation as to price or quantity, including in connection with a tender offer.
- 18 - 4.4 Cancellation
All Bonds which are redeemed (including upon exchange) or purchased by the Issuer will be promptly cancelled and accordingly may not be reissued or resold.
5. PAYMENTS 5.1 Method of Payment
Payments of principal, interest and other amounts in respect of the Bonds will be made in Euros by credit or transfer to a Euro account (or any other account to which Euros may be credited or transferred). Such payments shall be made for the benefit of the Bondholders to the Account Holders and all such payments so made to the relevant Account Holders shall discharge the liability of the Issuer under the Bonds to the extent of the sums so paid.
Payments of principal, interest and other amounts on the Bonds will, in all cases, be made subject to any applicable fiscal or other laws and regulations in the place of payment. No commission or expenses shall be charged by the Issuer or the Agents to the Bondholders in respect of such payments.
5.2 Payments on Business Days
If any due date for payment of principal, interest or any other amount in respect of any Bond is not a TARGET business day, then the Bondholder shall not be entitled to payment of the amount due until the next following day which is a TARGET business day and the Bondholder shall not be entitled to any interest or other sums in respect of such postponed payment.
"TARGET business day" means a day in which the Trans-European Automated Real-Time Gross Settlement Express Transfer System (TARGET2) is operating.
5.3 Fiscal Agent and Paying Agents
The names of the initial Agents and their specified offices are set forth below.
FISCAL AGENT, PRINCIPAL PAYING AGENT AND LUXEMBOURG PAYING AGENT
Société Générale Bank & Trust 11, avenue Emile Reuter 2420 Luxembourg
PARIS PAYING AGENT
Société Générale 29, boulevard Haussmann 75009 Paris
The Issuer reserves the right at any time to vary or terminate the appointment of the Fiscal Agent or any Paying Agent and/or appoint other Paying Agents or approve any change in the office through which any such Agent acts, provided that there will at all times be (i) a Fiscal Agent and a Principal Paying Agent having a specified office in a European city, (ii) so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so
- 19 - require, a Paying Agent having a specified office in Luxembourg (which may be the Principal Paying Agent) and (iii) a Paying Agent having a specified office in Paris. Any termination or appointment shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not more than 45 nor less than 30 calendar days' notice thereof shall have been given to the Bondholders by the Issuer in accordance with Condition 9.
6. TAX STATUS 6.1 Tax Exemption
The Bonds are, pursuant to the French tax administration's circular no. 5 I-11-98 dated 30 September 1998 and rulings (rescrits) no. 2007/59 (FP) dated 8 January 2008 and no. 2009/23 (FP) dated 7 April 2009, deemed to be issued outside France for the purpose of Article 131 quater of the French Code Général des Impôts, and accordingly interest and other revenues in respect of the Bonds benefit at present from the exemption from deduction of tax at source provided by Article 131 quater of the French Code Général des Impôts. Accordingly, such payments do not give the right to any tax credit from any French source.
6.2 Additional Amounts
If French law should require payments of principal or interest in respect of any Bond be subject to deduction or withholding in respect of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by, or on behalf of, the Republic of France or any authority therein or thereof having power to tax ("Taxes"), the Issuer shall, to the extent then permitted by law, pay such additional amounts as may be necessary in order that the holder of each Bond, after such deduction or withholding, will receive the full amount then due and payable thereon in the absence of such withholding; provided, however, that the Issuer shall not be liable to pay any such additional amount in respect of any Bond to a Bondholder (or beneficial owner (ayant droit)):
(i) who is subject to such Taxes in respect of such Bond by reason of his having some connection with the Republic of France other than the mere holding of such Bond; or
(ii) where such deduction or withholding is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other European Union Directive implementing the conclusion of the ECOFIN Council meeting of 26-27 November 2000 on the taxation of savings income or any law implementing or complying with or, introduced in order to conform to, such Directive.
References in these Conditions to principal and interest shall be deemed also to refer to any additional amounts which may be payable under the provisions of this Condition 6 (b).
7. EVENT OF DEFAULT If any of the following events (each an "Event of Default") shall have occurred and be continuing:
(i) default is made for a period of 15 days or more in the payments of any amount on the Bonds when and as the same shall become due and payable; or
- 20 - (ii) default is made in the performance of, or compliance with, any other obligation of the Issuer under the Bonds, if such default has not been remedied within 30 days after receipt by the Fiscal Agent of written notice of such default given by the Representative of the Masse (as defined in Condition 8); or
(iii)
(a) any amount of principal due under any of the Issuer’s indebtedness for borrowed monies is not paid at the stated final maturity date thereof (after expiry of any applicable grace period), or
(b) any of the Issuer’s indebtedness for borrowed monies becomes prematurely due and payable or is placed on demand in each case as a result of an event of default (howsoever described),
unless the aggregate amount of indebtedness for borrowed monies falling within paragraphs (a) or (b) above is less than €30,000,000 (or its equivalent in any other currency or currencies); or
(iv) the Issuer sells or otherwise disposes of all or substantially all of its assets or ceases or threatens to cease to carry on the whole or substantially all of its business or an order is made or an effective resolution passed for its winding-up, dissolution or liquidation, unless such winding-up, dissolution, liquidation or disposal is made in connection with a merger, consolidation, reconstruction, amalgamation or other form of combination with or to, any other corporation and the liabilities under the Bonds are transferred to and assumed by such other corporation; or
(v) the Issuer applies for or is subject to an amicable settlement (accord amiable) with its creditors, or applies for the appointment of a conciliator (conciliateur) or any judgment is issued for its judicial liquidation (liquidation judiciaire) or the transfer of the whole of its business (cession totale de l'entreprise) or, to the extent permitted by law, it ceases payments on its debts or is subject to any insolvency or bankruptcy proceeding or makes a conveyance or assignment for the benefit of, or enters into a composition with, its creditors; or
(vi) all or any substantial part of the property, assets or revenues of the Issuer shall be attached or shall become subject at any time to any order of court or the enforcement of any security interests (sûretés réelles) at the request of any creditor of the Issuer in order to protect borrowed money (provided that the aggregate amount of the creditors’ expected claim in relation to such a request is greater than €30,000,000) and such attachment or order shall remain in effect and not be discharged for, or the steps taken to enforce any such security interests shall not be withdrawn or stayed within 30 calendar days, the Representative (as defined in Condition 8) shall, upon the request of any Bondholder or, in the absence of a Representative, any Bondholder may, upon written notice to the Fiscal Agent and the Issuer, cause the Bonds held by such Bondholder to become due and payable at their principal amount, together with any interest accrued to the date of redemption calculated in accordance with Condition 3, as of the date on which such notice is received by the Issuer.
- 21 - 8. REPRESENTATION OF THE BONDHOLDERS The Bondholders will be grouped for the defence of their respective common interests in a masse (hereinafter referred to as the "Masse").
The Masse will be governed by those provisions of the French Code de commerce (the "Code") (as modified or re-enacted from time to time) with the exception of the provisions of Articles L.228-48, L.228-49, L.228-59, L.228-65-II, R.228-63, R.228-67 and R.228-69 of the Code (as modified or re-enacted from time to time), as amended by the conditions set forth below, provided that notices calling a general meeting of the Bondholders (a "General Meeting") and the resolutions passed at any General Meeting and any other decision to be published pursuant to French legal and regulatory provisions will be published only as provided under Condition 9.
The Bonds being issued outside the Republic of France, the Masse is, in accordance with Article L. 228-90 of the Code, governed solely by the legal provisions which are expressed as applicable to the Bonds as stated above and subject to the foregoing paragraphs.
8.1 Legal Personality
The Masse will be a separate legal entity, by virtue of Article L.228-46 of the Code acting in part through a representative (the "Representative") and in part through a General Meeting. The Masse alone, to the exclusion of all individual Bondholders, shall exercise the common rights, actions and benefits which now or in the future may accrue with respect to the Bonds.
8.2 Representative
The office of Representative may be conferred on a person of any nationality. However, the following persons may not be chosen as a Representative:
(i) the Issuer;
(ii) any entity holding (directly or indirectly) at least 10% of the share capital of the Issuer or at least 10% of the share capital of which is held by the Issuer;
(iii) any entity guaranteeing all or part of any obligations of the Issuer;
(iv) any member of the Board of Directors (Conseil d'Administration) of the Issuer, the Statutory Auditors of the Issuer, or any employee, managing director or director (or their respective ascendants, descendants and spouses) of the entities referred to in (i), (ii) or (iii) above; and
(v) persons who have been prohibited from practicing as a banker or who have been deprived of the right to direct, administer or manage an enterprise in any capacity whatsoever.
- 22 - The initial Representative shall be:
Mr Yoann Montet
Le Conservateur 59 rue de la faisanderie 75016 Paris
The alternative Representative shall be:
Stéphane Ravel
Le Conservateur 59 rue de la faisanderie 75016 Paris
The Representative will have the power, without restriction or reservation, to take, on behalf of the masse, all actions of an administrative nature necessary to protect the interests of the Bondholders.
The Representative will exercise its duty until its dissolution, resignation or termination of its duty by a general meeting of the Bondholders or until it becomes unable to act. Its appointment shall automatically cease on the date of final or total redemption, prior to maturity or otherwise, of the Bonds. This appointment may be automatically extended until the final resolution of any proceedings in which the representative is involved and the enforcement of any judgements rendered or settlements made.
The Issuer shall pay to the Representative an amount of € 400 per year.
The alternative Representative will only become entitled to the annual remuneration of € 400 if it exercises the duties of Representative on a permanent basis; such remuneration will accrue from the day on which it assumes such duties.
All interested parties will at all times have the right to obtain the name and the address of the Representative at the head office of the Issuer and at the offices of any of the Paying Agents.
8.3 Powers of the Representative
The Representative shall, in the absence of any decision to the contrary of a General Meeting of Bondholders, have the power to take all action to defend the common interests of the Bondholders.
All legal proceedings by or against the Bondholders must be brought by or against the Representative, and any legal proceedings which shall not be brought in accordance with this provision shall not be legally valid.
The Representative may not interfere in the management of the affairs of the Issuer.
8.4 General Meetings
General Meetings may be held at any time, on convocation either by the Issuer or the Representative. One or more Bondholders, holding together at least one-thirtieth of outstanding
- 23 - Bonds may address to the Issuer and the Representative a demand for convocation of the General Meeting. If such General Meeting has not been convened within two months from such demand, such Bondholders may commission one of themselves to petition the competent court in Paris to appoint an agent (mandataire) who will call the General Meeting.
Notice of the date, hour, place, agenda and quorum requirements of any General Meeting will be published as provided in Condition 9 not less than fifteen days prior to the date of the General Meeting for the first convocation and not less than six days for a second convocation.
Each Bondholder has the right to participate in General Meetings in person or by proxy. Each Bond carries the right to one vote.
8.5 Powers of General Meetings
A General Meeting is empowered to deliberate on the fixing of the remuneration of the Representative and on its dismissal and replacement, and also may act with respect to any other matter that relates to the common rights, actions and benefits which now or in the future may accrue with respect to the Bonds, including authorising the Representative to act at law as plaintiff or defendant.
A General Meeting may further deliberate on any proposal relating to the modification of these Conditions, including:
(i) any proposal whether for arbitration or settlement, relating to rights in controversy or which were the subject of judicial decisions; and
(ii) any proposal relating to the issue of securities carrying a right of preference compared to the rights of Bondholders; it being specified, however, that a General Meeting may not increase amounts payable by the Bondholders, nor establish any unequal treatment between the Bondholders, nor decide to convert the Bonds into shares of the Issuer or any other entity.
General Meetings may deliberate validly on first convocation only if Bondholders present or represented hold at least one-quarter of the principal amount of the Bonds then outstanding. On second convocation, no quorum shall be required. Decisions at meetings shall be taken by a majority of two – thirds of votes cast by the Bondholders attending such meeting or represented thereat.
8.6 Information to the Bondholders
Each Bondholder will have the right, during the 15 day period preceding the holding of each General Meeting, personally or through a representative, to consult or make a copy of the resolutions which will be proposed, and of any reports which may be presented, at the meeting, which will be available for inspection at the principal office of the Issuer, at the specified offices of the Paying Agents and at any other place specified in the notice of meeting.
8.7 Expenses
The Issuer will pay all expenses incurred in the operation of the Masse, including expenses relating to the calling and holding of meetings and remuneration of the Representative, and
- 24 - more generally all administrative expenses resolved upon by a General Meeting, it being expressly stipulated that no expenses may be imputed against interest or other amounts payable on the Bonds.
8.8 Notices of Decisions
Decisions of the meetings shall be published in accordance with the provisions set forth in Condition 9 not more than 90 days from the date thereof.
9. NOTICES Any notice to the Bondholders shall be validly given if it is transmitted to Euroclear France, Euroclear and Clearstream, Luxembourg and, so long as the Bonds are listed and admitted to trading on the Regulated Market of the Luxembourg Stock Exchange and the rules of that exchange so require, if it is published on the website of the Luxembourg Stock Exchange (www.bourse.lu) and/or in a leading daily newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, if such publication is not practicable, or the Bonds are no longer so listed, in a leading English language daily newspaper having general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which such publication is made.
10. PRESCRIPTION Claims against the Issuer for the payment of principal and interest in respect of the Bonds shall become prescribed 10 years (in the case of principal) and five years (in the case of interest) from the due date for payment thereof.
11. FURTHER ISSUES The Issuer may from time to time without the consent of the Bondholder issue further Bonds to be assimilated (assimilables) with the Bonds as regards their financial service, provided that such further Bonds and the Bonds shall carry rights identical in all respects (or in all respects except for the first payment of interest thereon) and that the terms of such further Bonds shall provide for such assimilation. In the event of such assimilation, the Bondholders and the holders of any assimilated Bonds may, for the defence of their common interests, be grouped in a single masse having legal personality.
12. MODIFICATION OF THE FISCAL AGENCY AGREEMENT The Fiscal Agency Agreement may be amended by the parties to it, without the consent of the Bondholders, for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained in it, or in any manner which the parties to the Fiscal Agency Agreement mutually deem necessary or desirable, provided that any such amendment does not adversely affect the interests of the Bondholders.
13. GOVERNING LAW AND JURISDICTION The Bonds and the Fiscal Agency Agreement are governed by the laws and Republic of France.
- 25 - For the benefit of the Bondholders, the Issuer submits to jurisdiction of the competent courts in Paris. This submission shall not limit the right of any Bondholder to take proceedings in any other court of competent jurisdiction.
- 26 - USE OF PROCEEDS The net proceeds of the issue of the Bonds, which will be approximately €299,400,000, will be applied by the Issuer for its general corporate purposes.
- 27 - DESCRIPTION OF THE ISSUER
1. HISTORY AND DEVELOPMENT OF SFR The Issuer is Société Française du Radiotéléphone SFR S.A. acting as the holding company of the SFR Group. The commercial name of the Issuer is SFR, and the legal name of the Issuer is SFR S.A.
1.1 Background SFR is a French société anonyme. Its share capital of €1 347 441 147,90 is divided into 8 982 940 986 fully paid-up in ordinary shares with a nominal value of €0.15 per share. The shares of SFR are not listed on any stock exchange. SFR S.A. was established on 14 December 1995 for a term of 99 years and registered under number 403 106 537 with the Registre du Commerce et des Sociétés of Paris, France and is subject to French law. SFR's registered office is located at 42, avenue de Friedland, 75008 Paris, France and the telephone number is +33 1 56 603 603. SFR's management office is located at 1, place Carpeaux, 92915 Paris La Défense, France and the telephone number is: +33 1 71 07 07 07.
1.2 Recent development • The merger of Neuf Cegetel within SFR is effective since April 1st, 2009; On December 19, 2008, the “Edition et International” activities of Jet Multimédia were sold to Newco company for €12m. The sale of the Polish entities, for other €8m, has been finalized in February 2009 after the authorization from the polish bodies concerned with the business concentration control. On March 12, 2009, SFR has submitted a public withdrawal offer draft (projet d'offre publique de retrait) on the Jet Multimédia shares for review and approval to the AMF at a price of €5.75 per share. The number of Jet Multimedia shares aimed by the Simplified Public Purchase Offer is 3.495.066. The Draft Simplified Public Purchase Offer and the Draft Offer Document are available on the website of the Autorité des Marchés Financiers (www.amf-france.org). As of today, the AMF has still not given its approval on the offer; • SFR paid on January 30, 2009 dividends totalling approximately €750m to its shareholders.
1.3 Corporate purpose
Pursuant to article 2 of the Company's articles of association, the objects of SFR are: - to design, build and operate telephony systems from fixed and mobile sets; - generally, to carry on any mobile telecommunication activity in France and abroad;
- 28 - - to design, to build, to commercialise and to operate any system, equipment, services, networks in relation to voice and data transmission in France and abroad by radio communication; - to operate fixed and FTTH networks and systems, as well as related services and products, transport of voice and data, hosting, traffic terminations; - to take minority or majority participation in entities whose activity is related to the above; - to purchase, sell, operate patents and licenses relating thereto; - and generally, any activities that are related or supportive to the objects detailed above.
1.4 Fiscal Year SFR's fiscal year ends on 31 December.
2. SFR GROUP STRUCTURE
2.1 SFR's shareholders Vivendi is the reference shareholder of SFR with a 55.79% stake. The remaining stake is mainly held 43.91% by Vodafone SA, wholly owned subsidiary of Vodafone Group plc.
Shareholders Number of Shares % of Capital Share
Vivendi 5 011 611 222 55,79 %
Vodafone 3 944 753 169 43,91 %
Free shares holders in the 22 079 510 0,24 % “conservation” period
Treasury shares 4 496 335 0,06 %
Other shareholders 750 0 %
Total 8 982 940 986 100 %
- 29 - 2.2 The structure of SFR Group as of June 15th 2009 is as follow :
56 44
Vivendi (BBB/Baa2/BBB) is a leader in digital entertainment with business activities in music, television, cinema, mobile, Internet and games. For financial year ending 31 December 2008, Vivendi reported earnings from operations (EBITA) of €4,953 million on consolidated revenues totalling €25.4 billion.
Vivendi capitalizes on consumer demand for mobility and broadband to drive new services and new revenue streams in the world of digital entertainment Vodafone Group Plc (A-/Baa1/A- ) is the world's leading mobile telecommunications company with equity interests in 27 countries and Partner Markets in more than 40 countries. As of 31 March 2009, Vodafone had approximately 303 million proportionate customers worldwide.
The full-year financial report (for the year ended 31 March 2009), Vodafone Group Plc reported consolidated operating profit of £11.8 billion and consolidated revenues totalling £41 billion.
The relationship between SFR and its shareholders is governed by a shareholders’ agreement signed in 1997 and amended in 2003. Under the shareholders’ agreement, Vivendi has majority control over the SFR Board of Directors and also majority control over the SFR shareholders general meeting. The shareholders’ agreement provides that the settlement of disputes among shareholders should be first achieved through an escalation process to the chairmen of Vivendi and Vodafone and, if no agreement is found between them, by vote on the Board of Directors at majority.
- 30 - The shareholders’ agreement provides that SFR should distribute the maximum of profits of the year available for distribution. In parallel, the shareholders’ agreement also provides that the debt to equity ratio of SFR Group should not exceed 1. In 2003, Vivendi signed with Vodafone Group Plc agreements designed to further improve the performance of SFR Group, as well as to optimise cash flows between SFR Group and its shareholders: − an agreement to increase their co-operation and their joint economies of scale in a number of different areas through coordination of their activities in the development and rollout of new products and services, including Vodafone live!, development of operational synergies in procurement (including IT and technology), and best practice sharing; − an agreement to adopt a quarterly dividend distribution policy starting 2004. − In December 2007, after announcement of the proposed acquisition of Neuf Cegetel, Vodafone Group plc and Vivendi S.A agreed a reduction of dividends paid to shareholders over the next three years (from 2008 to 2010).
2.3 SFR's major direct subsidiaries as of 15 June 2009 − Société Réunionnaise du Radiotéléphone (SRR) is a wholly owned subsidiary of SFR and operates a mobile telephone network in the French overseas territories Réunion and Mayotte. − SFR Service Client is a wholly owned subsidiary of SFR and operates SFR customer relationship management. − SFR Développement is a wholly owned subsidiary of SFR, making early-stage investments, to foster innovation related to telecommunications. − Guetali Haut Débit is a wholly owned subsidiary of SFR and operates ADSL and fixed network in La Réunion. − LD Collectivités is a wholly owned subsidiary of SFR and ensures the management of public service delegations (DSP) which build, market and exploit local telecommunications ADSL networks, while profiting from investment subsidies of delegating local collectivities. − Jet Multimédia SAS is a wholly owned subsidiary of SFR and has an activity of design, implementation and management of outsourced solutions related to customer relationship, infogérance and mobile marketing focused on companies and administrations. − Guetali Haut Débit is a wholly owned subsidiary of SFR and operates ADSL and fixed network in La Réunion.
- 31 - 3. CORPORATE GOVERNANCE SFR complies in all material respect with French corporate governance regulation applicable to it.
Frank Esser Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France Chairman and CEO – SFR, member of the Vivendi Management Board Philippe Capron 42 avenue de Friedland 75008 Paris France Member of the Vivendi Management Board and Chief Financial Officer – Vivendi
Michel Combes Vodafone Group Services Ltd Vodafone House The Connection Newbury Berkshire RG142FN UNITED KINGDOM Chief Excecutive Officer Europe – Vodafone Group Services Ltd
Margherita Della Valle The Courtyard 2-4 London Road Newbury Berkshire RG14 1JX Chief Financial Officer Europe – Vodafone Group Services Ltd
Jean-Bernard Lévy 42 avenue de Friedland 75008 Paris France Chairman of the Management Board – Vivendi
Bertrand Méheut 1 place du Spectacle 92130 Issy Les Moulineaux France Chairman and CEO – Canal Plus, member of the Vivendi Management Board
Sean Crowley Vodafone Group Services Ltd Vodafone House The Connection Newbury Berkshire RG142FN UNITED KINGDOM
- 32 - Pietro Guindani Vodafone Italy Via Caboto 15 20094 Corsico (MI) Italy Chairman, Vodafone Italy
Pierre Trotot Tour Séquoia 1 place Carpeaux 92915 Paris La Defense Cedex France Director and Senior Executive Vice President Administration and Finance – SFR
Vivendi 42 avenue de Friedland 75008 Paris France represented by Jean-François Dubos, Executive Vice President and General Counsel; Secretary of the Vivendi Supervisory and Management Boards
The Board of Directors decides on the strategic and industrial policies to be followed by SFR and its subsidiaries and ensures that they are properly implemented. It is able to deal with any questions concerning the running of SFR Group companies and discusses and resolves any matters arising in relation to these companies. It discusses and approves, prior to implementation, all significant operations carried out by SFR. Working in conjunction with the audit committee in particular, the Board of Directors is responsible for clearly defining the powers within the company and for ensuring that all the internal management bodies function properly, that the auditors carry out their duties correctly and that the information given to shareholders and to the financial markets is correct, in accordance with the provisions of the Sarbanes-Oxley Act and the French Financial Security Law n°2003-706 of 1st August 2003 (loi de sécurité financière). There are no conflict of interests between any duties of the members of the Board of Directors of SFR and their private interests or other duties.
3.2 The Executive Committee (Comex) The Comex of SFR Group is composed of 10 Directors from companies of SFR Group and meets once a week to discuss strategic matters affecting SFR Group as a whole or particular questions relating to one or other of its businesses. It also carries out a periodical review of the indicators used for monitoring all SFR Group's subsidiaries and intervenes in any operational matters as it sees fit. Frank Esser Chairman of the Executive Committee of SFR Group Chairman and CEO of SFR and member of the Vivendi Management Board Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
- 33 - Pierre Trotot Director and Senior Executive Vice President Administration and Finance Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
Frank Cadoret General Manager - Sales, Distribution and Customer Operation Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
Paul Corbel General Manager - Corporate 12/14, rue de la Verrerie – Meudon Campus 92190 Meudon France
Eric Iooss General Manager – IT 5 rue Noël Pons 92000 Nanterre France
Pierre-Alain Allemand General Manager – Network Boulogne Quai Ouest 40-42 quai du point du Jour 92100 Boulogne Billancourt France
Jean-Louis Mounier General Manager – Innovation & Service Factory Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
- 34 - Marie-Christine Théron General Manager - Human Ressources Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
Jean-Marc Tassetto General Manager - Brand, Marketing, Consumer Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
Richard Lalande Senior Executive Vice President - SFR Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
3.3 The audit committee The audit committee is responsible for preparing the work of the Board of Directors and advising it on the accounting methods and principles used and on the preparation of the accounts, monitoring the activities of the auditors, selecting the auditors and ensuring that the rules relating to their independence are observed. It also plays a role in relation to the internal audit function and off-balance sheet risks and commitments. It is comprised of Directors representing the shareholders. The members of the audit committee are fully conversant with accounting standards and have practical experience in drawing up accounts and in the application of current accounting standards.
The current members of the audit committee are:
Philippe Capron Member of the Vivendi Management Board and Chief Financial Officer - Vivendi 42 avenue de Friedland 75008 Paris France
Sean Crowley Vodafone Group Services Ltd Vodafone House The Connection Newbury Berkshire RG142FN UNITED KINGDOM
Pierre Trotot Director and Senior Executive Vice President Administration and Finance – SFR Tour Séquoia 1 place Carpeaux 92915 Paris La Défense Cedex France
- 35 - 3.4 The Executive Committee at shareholders' level (ExCom) The ExCom plays a key role with respect to the strategy and the management policy of SFR Group. It determines the shareholders’ common position and prepares the work of the Board of Directors on all the major strategic decisions relating to commercial, financial, technical and operational matters such as acquisition/disposal/transfer of assets, approval of the business plan, financial statements and dividend policy. The ExCom is comprised of members representing SFR Group and the shareholders.
3.5 Rating by Fitch On June 8th, 2009 Fitch Ratings downgraded SFR senior unsecured and long-term issuer default ratings (IDR) to 'BBB+' (BBB plus). At the same time, the long term IDR was assigned a Stable Outlook: The downgrade reflects Fitch's substantially lower expectations of performance from the Neuf Cegetel business than had been factored into the agency's forecasts when the acquisition closed in April 2008. This both increases the group's operational risk profile and lengthens its de- leveraging timetable, the adherence to which had been a key consideration of the 'A-' rating. Fitch expects SFR's solid business model will remain largely underwritten by its overall stable and cash-generative mobile activities (84% of group EBITDA), with ongoing competitive and regulatory pressures (mobile termination rates and new taxes) mitigated by increasing data revenues and lower capex requirements.
Fitch considers SFR to be comfortably placed in the 'BBB+' rating with its current credit metrics and business risk profile, which factors in the possibility of underperformance in the fixed segment.
The most likely potential triggers for negative rating action would be business-related, with either worse performance in fixed-line than expected, a downturn in results in the mobile segment due to the maturing French market, though a change in dividend policy which marks a divergence from SFR's historically conservative financial policy could also pressure the rating. Conversely, a restoration of pre-Neuf acquisition credit metrics, for example, to an unadjusted net debt/EBITDA below 1x, combined with a sustainable strengthening of the fixed line business, could lead to positive rating action.
Fitch anticipates no major changes to the French mobile market. While competitive pressures will remain among the three existing mobile operators, the ongoing debate with regards to conditions of the fourth 3G mobile licence award suggest that the new entrant is unlikely to be commercially operational before 2011/2012, at which point the mobile market would have probably reached full penetration.
- 36 - 4. OVERVIEW OF ACTIVITIES
4.1 Description of the Businesses SFR, was formed in 1987. Following the takeover of Neuf Cegetel in April 2008, SFR became the largest alternative fixed and mobile telephony operator in Europe and the second largest global telecommunications operator in France, with ownership of its own network infrastructure.
SFR provides telecommunication services to its customers in metropolitan France, La Réunion and Mayotte via Société Réunionnaise du Radiotéléphone (“SRR”), its wholly-owned subsidiary. It provides:
• to individual customers: o mobile telephony retail services, access to mobile multimedia data services (messaging (SMS, MMS) and image and sound broadcasting) and mobile Internet access (transmission and receipt of emails and Internet navigation). SFR offers these services through subscription (post-paid) or by phone card (pre-paid), with or without handsets; o fixed telephony retail services and broadband Internet access, including “multiplay” offerings that combine broadband Internet access, telephone subscription, Internet Protocol (“IP”) telephony, ADSL television and other non-package services; and o traditional Switched Voice services such as preselected telephony and special toll-free numbers. • to professional and business customers: o mobile telephony retail services, access to mobile data services (particularly secure remote access to networks and business applications), mobile Internet access, “Machine-to-Machine” solutions in data communications, telemetry, electronic banking and security, and security for assets and individuals; and o «multiplay» data services: telephone subscriptions, IP telephony, high-speed Internet access, virtual private network and other services. • to operators as customers: o wholesale mobile telephony services to Mobile Virtual Network Operators (“MVNO”) to enable them to provide a set of retail access and mobile outgoing call services, as MVNOs are not authorized to use frequencies; and o wholesale services, including “data” offerings, switched voice services and network and hosting infrastructure solutions for electronic communications operators.
As of December 31, 2008, SFR had 19.7 million mobile customers and 3.9 million high-speed Internet customers, representing 33.8% of the mobile telephony market and 21.9% of the French high-speed Internet market (Source: Electronic Communications and Mail Regulation Authority (“ARCEP”) and SFR data).
4.2 Performance and services
2008 was characterized by the takeover of Neuf Cegetel in April, which constituted a major step in SFR’s strategy. This acquisition accelerated the implementation of growth vectors due to the expansion of Neuf Cegetel and SFR’s naturally complementary operations, customer bases,
- 37 - networks and employee teams. The goal is to address new challenges faced by the telecom sector, such as:
• a decline in market growth and the competitive environment; • the spread of the Internet; • the emergence of the fixed mobile convergence, particularly in the “business” sector; and • the conversion to very high-speed connection, including the necessary installation of fiber optic networks.
4.2.1 Mobile
According to the ARCEP, the mobile telecommunications market continued to expand in France in 2008, with a customer base that rose by 2.7 million (a net annual growth of 4.9%). The number of mobile customers in France (including overseas territories) totaled 58.1 million as of December 31, 2008 and the market penetration rate was 91.3% at year-end 2008, compared to 87.6% at year-end 2007.
In 2008, the French market was again driven by regulatory pressures and intense competition due to:
• cuts in regulated tariffs imposed by regulators; • the development of subscription offerings, and in particular the migration from pre-paid cards to subscriptions (the share of subscription customers among mobile telephony customers in France rose from 65.6% at year-end 2007 to 67.6% at year-end 2008); • the continued development of MVNOs within the French market; • the expansion of unlimited bundled offers (voice and data) and growth in third generation telephony offerings (3G/3G+) penetration; • the development of fixed/mobile convergent offerings, especially for businesses; and • the explosion of mobile Internet.
SFR recorded 886,000 new mobile customers over 2008 (32.6% of net market sales), including 425,000 during the fourth quarter, and increased its customer base to 19.7 million, a 4.7% increase compared to 2007. SFR is also number one in 3G/3G+ with approximately 5.9 million customers in 2008 compared to 4.1 million at year-end 2007. According to internal estimates, SFR hosts 1.1 million customers on its network for MVNOs, representing approximately 38.8% of all Virtual Network Operator (“VNO”) customers in the market. SFR’s share of the mobile telephony market in France, excluding MVNOs, was 33.8% in 2008, compared to 33.9% in 2007 (Source: Arcep ).
The use of “data” services continued to grow in 2008. At year-end 2008, “data” services represented 17.7% of services revenue, compared to 13.7% at year-end 2007.
Mobile Internet grew substantially and SFR was a leader in this field with the marketing of highly successful innovative offerings:
• “Illimythics” – packages that offer all mobile Internet uses on an unlimited basis, without restriction on time or downloads, were subscribed to by more than 1.4 million customers at year-end 2008, when the remote access customer base totalled 315,000
- 38 - SIM cards, including 190,000 Internet 3G+ Keys (instantaneous mobile Internet access from portable PCs, with no installation necessary); and • the growth in mobile Internet was also driven by the arrival on the market of increasingly high performance handsets (including storage capacity, screen size and 3G/3G+) and the launch of Mobile Internet Devices (“MID”), handsets developed specifically for this type of usage.
Other mobile services offered by SFR to consumers include the following:
• the transmission of text and multimedia messages which continued to rise with 14.6 billion SMSs • at year-end 2008, compared to 7.3 billion in 2007 (a 100% increase); • mobile music, due specifically to strategic agreements entered into with major record companies pursuant to which SFR can offer a music catalog of over 1 million singles. In 2008, SFR was the largest mobile music downloading platform in France, with more than 10 million downloads (a 60% increase compared to 2007); • TV-VoD on mobile, with over 2.1 million subscribers at year-end 2008 and 81 channels (including 54 channels within the CanalSat package, with approximately 100,000 customers at year-end 2008, the five channels of the Canal+ package and the 22 channels of Pass TV) and content adapted to the mobile medium VoD and content loops; and • games, with more than 5.7 million video games downloaded in 2008 and over 800 games available for download, including eight multi-player online games and approximately fifteen high-definition games.
With the launch of “Ma Sfere” in 2008, SFR became the first European operator to offer a mass market service with fixed/mobile convergence, offering simple access to all personal content (contacts, messages and content).
4.2.2 Fixed and High-Speed Internet
In 2008, the high-speed Internet market continued to grow in France, with a 2.2 million increase in household customers, i.e., a 14% annual net growth. The total number of customer households in France (including overseas territories) was 17.7 million at year-end 2008.
Following the October 2008 launch of the SFR neufbox, combining high-speed Internet, TV, fixed telephony and customer services, SFR posted 27% net sales on the market in the fourth quarter of 2008, increasing its customer base to 3.9 million customer households.
At year-end 2008, SFR had completed the dissemination of every TV channel offered through its neufbox in the MPEG4 format, making 13 million households eligible for these offerings.
4.2.3 Businesses
2008 was driven by the creation of the “SFR Business Team” brand in November, offering unique fixed/mobile solutions to this market, as well as major strategic innovations.
These solutions generated:
- 39 - • a 20% growth in the number of “business” customer lines compared to 2007 on a comparable basis; • very strong growth in data services, including a 35% increase in one year in the number of remote access lines and a 51% increase in the “Business Mail” mobile messaging offerings; • a sharp increase in machine communications – the mobile machine-to-machine base more than doubled in one year and now has over 400,000 lines; and • a 12% increase in the number of business sites connected to the group network, from 173,000 sites at year-end 2007 to 194,000 sites at year-end 2008.
4.3 Investments
SFR is deploying a strategy of investing in its own telecommunication network infrastructures, particularly in its Universal Mobile Telecommunication Service (“UMTS” or “3G”) network, with the introduction of the High Speed Downlink Packet Access function (“HSDPA” or “3G+”). HSDPA allows (i) more available voice capacity and higher data transfer speeds and (ii) better quality to customers. The SFR 3G / 3G+ network is now broadly deployed and covers 72% of the French population compared to 70% in 2007. Investments in the Mobile network and information systems total approximately €800 million.
Investments were also made in Subscriber Connection Unit (“SCU”) connections, in order to continue expanding the decentralized network and allow it to consolidate its independence from the historic operator. As a result, 600 supplementary SCUs were connected to the SFR fiber optic network. As the first European “decentralizer,” at year-end 2008, SFR had 2,300 SCUs and over 4,500 DSLAMs on its network with over 19.5 million decentralized lines, i.e., approximately half of the French market.
SFR has invested in new generations of “full IP” equipment to respond to the increased usage of business networks and services.
SFR continued its investment in fiber optics with a national fiber optic cable infrastructure totaling approximately
50,000 kilometers at year-end 2008, as well as the deployment of a fiber optic capillary network to households.
SFR has extended its commercial coverage throughout France with a total of approximately 6,000 points of sale, including800 “espace SFR” boutiques.
4.4 Research and Development
In 2008, SFR’s efforts in research and development were primarily focused on three areas: the quality of customer service, service platforms and the exploration of new telecommunications technologies in radio (video-broadcast, HSxPA, WiMax) and core network (IMS/SIP, IPV6) or handsets.
SFR has adopted a network research strategy (academic and industrial) through collaborative projects, the results of which have generated new patents, particularly in the fields of networks, security and multimedia services.
- 40 - SFR has also elected to control the specifications and development of fixed connection terminals for decentralized lines for both voice and data services, as well as for video and TV.
Its research and development expenses are estimated at €63 million in 2008, the same level as that in 2007.
4.6 License scheme SFR's mobile services operate through a GSM license - the international standard for mobile communications and the dominant digital standard in Europe - or through a UMTS license. On 24 March 2004, ARCEP and the Ministry of Finance set out the conditions for renewing the GSM operating license, which expires in 2006. These conditions include a fixed annual payment of €25 million, as well as a variable payment of 1% of earnings. There are also network coverage commitments. In 2001, SFR was granted a UMTS license by the French government for a period of 20 years (until 2021) in return for a one-time payment of €619 million and an annual fee equal to 1% of the future turnover generated by the UMTS network. The bid tender process for the award of a fourth 3G mobile telecommunications license in France launched in 2007 was unsuccessful. The process remains within the hands of the French government who announced on 12 January 2009 that the 2.1 GHz frequencies availables will be cut in three batches of 5 MHz duplex : one batch reserved to a new operator and two batches opened to the actual operators. In February 2009, the French Government proposed a price of €206m for the fourth licence. The allocation of the frequencies should be completed before the end of the year.
4.5 Regulatory Environment 4.5.1 Changes in Regulation
In France:
• ARCEP Decision 08-0835 of July 24, 2008 on access to wire loop infrastructure, i.e., the local copper loop on the one hand, and civil infrastructure (including insulation and chambers) to deploy fiber optic lines up to the subscriber on the other hand. This decision will facilitate the expansion of SFR’s decentralized network, specifically with the possibility of using France Telecom’s fiber optics to offer triple-play offerings to new decentralized customers. It represents an initial stage in setting up the regulatory framework necessary for the development of new FTTH networks in compliance with the French Economic Modernization Act (“LME”); • ARCEP Decision 08-0896 of July 31, 2008 regarding voice call termination rates to the fixed networks of SFR and France Telecom. For SFR, under a multi-year schedule until October 1, 2010, this decision decreases the costs to reach France Telecom subscribers from its fixed or mobile network and the termination rates it receives from operators to reach its own fixed subscribers; • ARCEP Decision 08-1176 of December 2, 2008 regarding termination rates for voice calls to the mobile network. SFR’s voice call terminations will decrease from 4.5 euro cents as of July 1, 2009 to 3 Euro cents as of July 1, 2010.
- 41 - At the European level, current regulations are extensive as well:
• Negotiations regarding the second phase of the European Commission’s international roaming tariffs regulation plan presented on September 23, 2007: this new plan imposes ceilings on SMS tariffs (at 11 euro cents per SMS, compared to an estimated average of 29 euro cents), an accelerated reduction in the ceilings on retail tariffs, which should reach 34 euro cents in 2012, compared to 46 euro cents currently and the termination of per-minute tariffs in favor of per-second tariffs for roaming calls. Finally, with regard to roaming data, the plan gives consumers the ability to set a maximum usage amount beyond which service will have to be terminated by the operator and creates a wholesale tariff ceiling in order to decrease the highest tariffs. The Commission’s proposal (the so-called anti-bill shock measure in relation to surprisingly high invoices received by certain consumers) was approved at the Council of Ministers’ meeting of November 27, 2008. On the Parliament’s side, the ITRE Commission began work in late 2008. If the proposal is approved by the two institutions, the decrease in tariffs will apply beginning July 2009 and the anti-bill shock measure will apply the following year;
• Review of the telecom package at the negotiating table during the French presidential election: on November 27, 2008, the European Council of Ministers met in order to reach an agreement on a joint position concerning the review of European Community laws impacting the telecom sector (following proposals from the European Commission published more than a year ago and pursuant to the European Parliament’s vote on these projects on September 22, 2008). The goal is to reach a satisfactory compromise between the three institutions before the end of this European legislative session, i.e., in the spring of 2009.
The Fall of 2008 was characterized by significant changes in the telecoms industry:
• The French government established a 0.9% tax on operator revenue to finance the elimination of public television advertising; • The France Numérique 2012 digital plan was adopted by the French government and is aimed at ensuring that the entire French population has access to high-speed and very high-speed networks with a broad range of content and services. Operators will contribute to them through investments in fiber optics and 3G/3G+, followed by Long- Term Evolution, next generation (“LTE”), associated with the supply of wireless mobile services; and • In the matter of the 4th UMTS license, the French Prime Minister announced on January 12, 2009 that available frequencies at 2.1 GHz would be divided into three lots of 5 MHz each: one lot reserved for a new operator and two lots open to all operators. The call for bids procedure is expected to be launched by the ARCEP. The amount and terms and conditions for the payment of royalties owed pursuant to the allotment of these frequencies will be set by decree. The deadline for filing bids is expected to be June 2009 and the decision regarding frequency allotments could be made before the end of the year.
Certain legal provisions of the Economic Modernization Act (“LME”, August 2008) have an impact on SFR’s operations:
• In order to facilitate progress on territorial coverage in third-generation mobile radio broadcasting, after public consultation, and no later than six months after promulgation of the law, the ARCEP is expected to determine the terms and conditions under which
- 42 - 3G network facilities sharing will be implemented and the population coverage threshold above which such sharing is made; • Each operator will disclose the list of new gray areas covered during the year and communicate to the ARCEP those areas it anticipates covering; • The future of TV: an article setting forth the information to be addressed to consumers on the terms and conditions and time schedule for the elimination of analog television broadcasts; and • A specific tariff offered to low-income individuals will be subject to an agreement entered into between the Government and mobile telephony operators.
4.5.2 The digital dividend
The World Radiocommunications Conference (“WRC”) held in November 2007 allowed for the identification of a digital dividend of 72 MHz, sending a strong signal to manufacturers to begin developing base stations and mobile handsets in the 790-862 MHz band. In December 2008, the French Prime Minister approved this decision at the national level with, beginning November 30, 2011, the allocation of these frequencies to the electronic communications mobile services in the National Frequency Band Distribution Table (“TNRBF”), and several other European countries did the same. In February 2008, the ARCEP authorized SFR to re-use its 900-MHz frequencies to install 3G. These two decisions have contributed to the development of high- speed and very high-speed for the least populated areas and those most difficult to cover.
4.5.3 Dead Zones
At year-end 2008, over 96% of cities under the dead-zone coverage plan defined in 2003 were covered by SFR through 2G mobile services. Upon completing the program, operators even exceeded their initial commitment, which was to cover 3,000 cities identified as dead zones.
SFR has agreed, pursuant to a national agreement entered into in February 2007, to cover those axes defined as priority transmission axes by year-end 2009.
Dead zones constitute a challenge for the fixed services provided by LDCollectivités, a wholly- owned subsidiary of SFR, which builds and operates public networks in partnership with local authorities. For example, Manche Telecom, the public utility subsidiary of LDCollectivités, has installed over 215 technical sites on the territory of La Manche to increase high-speed coverage from 96% to over 99.9% of the total number of households.
4.6 Health and the Environment 4.6.1 Health The rapid development of mobile telephony in recent years has opened up an international debate regarding the potential risks of electromagnetic fields on human health. Thus, at the end of 2000, SFR set up a department supported by a scientific board comprised of an epidemiologist, an environmental specialist and a sociologist. Its objectives are to monitor the research and recommend, where necessary, appropriate measures validated by a sustainable
- 43 - development committee chaired by its Chairman and Chief Executive Officer. A steering committee was also formed in order to monitor and adapt the measures to be taken.
SFR is closely monitoring the works of international experts on this subject. With regard to base station antennas, the World Health Organization (“WHO”) and French health authorities do not share the assumption that those living in the vicinity of base station antennas are at risk. This finding is corroborated by the observation over several decades of populations living in the vicinity of much more powerful transmitters, such as television and FM radio transmitters.
In respect of this issue, as well as that of the installation of base station antennas, SFR has adopted a systematic information and harmonization approach with its counterparts, whether they be elected officials, as part of the “Guide to relationships between cities and operators” entered into between the Association of French Mayors (“AMF”) and the French Association of Mobile Operators (“AFOM”), or consumers, via the distribution of a brochure entitled “An antenna near me,” published by the AFOM. The mobilization of SFR’s regional technical teams continues, with intensified campaigns to measure electromagnetic fields and the holding of numerous public information meetings.
With regard to cell phones, no evidence of risk to user health has been established. The International Agency for Research on Cancer (“IARC”) was authorized by the WHO to conduct a large scale epidemiological study called Interphone, involving thirteen countries. A comprehensive summary is still to be published, though several countries (nine at the end of 2008) have already published their individual results. Certain issues deserve to be studied in great depth, particularly regarding the effects of long term and intensive use. Pending these results, expert groups recommend certain precautions for use.
In this context, SFR has strengthened its customer information efforts. In 2008, the brochure “My cell phone and my health”, updated and published by the AFOM, was sent to all new customers in the package containing their SIM card and distributed at SFR stores. A new AFOM brochure, “My cell phone and me,” directed toward teens, was also released this year to supplement the parents’ user guide entitled “Your child and cell phones.” All these documents may be downloaded from the SFR and AFOM websites.
More generally, SFR communicates to users precautions to reduce exposure to electromagnetic waves through the use of a pedestrian kit (provided free of charge in all SFR packages) and discloses exposure levels of its telephones on its websites, in its sales brochures and on shelf displays throughout its distribution network.
SFR is continuing its support for the “Health and radiofrequencies” research foundation, recognized as a public interest entity in January 2005.
4.6.3 Environment Regarding the environment, in December 2008, SFR obtained ISO 14001 certification of its Environmental Management System (“EMS”) for its efforts relating to mobile telecommunications activities (maintenance and installation of strategic sites and base station antennas) and activities involving the operation and maintenance of its principal tertiary sites.
- 44 - With respect to SFR’s principal environmental policy actions in 2008, 95% of the new base station antennas that have been installed were adapted to the surrounding landscape and over 100,000 used cell phones were collected throughout the entire “SFR space” distribution network.
SFR participates in the Ordi 2.0 program launched by the Digital Economy Secretariat to give new life to computer hardware and contribute to reducing digital waste. Nearly 3,200 computers have been collected by SFR to benefit schools and associations.
4.7 Presentation of Consolidated Financial Statements SFR’s revenues reached €11,517 million compared to €8,979 million in 2007, i.e. an increase by 28.3% following the integration of Neuf Cegetel since April 15, 2008 and of Tele2 France fixed and ADSL activities since July 20, 2007.
Net operating expenses of the year increased up to €9,078 million compared to €6,480 million in 2007 and concern the following items:
§ costs of sales at €5,724 million § commercial, marketing and customer management costs at €2,523 million § general and administrative costs at €547 million § depreciation of fixed and intangible assets at €1,223 million § capital loss on the divestiture of fixed and intangible assets at €57 million § amortization of intangible assets acquired through business combination at €102 million § restructuring costs at €123 million
Earnings before interest and income taxes (EBIT) amounted to €2,439 million compared to €2,499 million on December 31, 2007.
Income from equity affiliates reached €12 million including the 39.85% share of the group in Neuf Cegetel income between January 1, 2008 and April 15, 2008 at €18 million.
During the year 2008, SFR’s stake in Neuf Cegetel increased from 39.85% to almost 100% after the acquisition of Groupe Louis Dreyfus shares on April 15, 2008 and the Public Tender Offer followed by squeeze out on June 24, 2008.
Financial charges amounted to -€322 million compared to -€223m in 2007.
Income tax charges amounted to -€721 million compared to -€783 million in 2007.
As a result, net consolidated income was €1,331 million, compared to €1,548 million in 2007 and consolidated net income attributable to equity holders of the parent was €1,352 million compared to €1,549 million in 2007.
Net capital expenditures reached €1,257 million (compared to €981 million in 2007). Financial investments consisted mainly of the acquisition of almost all Neuf Cegetel shares, which represented a cash impact of €4,344 million financial investments in addition to Neuf Cegetel debt at €1,004 million.
- 45 - Those investments were covered by the cash-flow from operations which reached €2.8 billion, compared to €2.5 billion in 2007 and by the increase in debt, especially through a revolver credit line of €3 billion from Vivendi. The group net debt is established at €7,085 million on December 31, 2008 compared to €2,813 million at the end of December 2007.
4.8 2009 outlook The growth of Mobile postpaid customers should slow down in 2009. The increase in national penetration rate, which should be above 93% of the population at the end of the year (vs. 91% in December, 2008), is mainly due to the development of double equipment and Machine-to- Machine offers.
The development of unlimited voice and data offers and the continuous fixed / mobile substitution will contribute to the growth of usages. Along with an increasing rate of 3G customers in SFR customer base, new multimedia services will continue to develop, mainly access and data services, Fixed and Mobile Internet.
After 2008 which was a year of consolidation, growth in Broadband Internet market should slow down. Fiber development will also be a significant element in 2009.
The growth of Broadband Internet subscribers will be driven by “Neufbox de SFR” successfully launched in fall 2008. The churn due to migrations of acquired customer bases should have a negative impact on ADSL customer growth until the middle of the year. SFR’s objective is to reach a net growth level equal to its customer base market share at the end of the year.
The impact of economic crisis on customer behaviour is very hard to estimate and was analysed as sensibility. Without taking into account a major deterioration of the current environment, Mobile and Broadband Internet revenues should increase due to increasing usages and customer bases and despite the decrease in termination rates, the regulatory impact on roaming and the decrease of switched voice revenues.
Operating profit should be impacted by new taxes linked to audiovisual businesses and to other regulatory decisions (Châtel law and decrease in termination rates).
After several years of significant investments in GSM and UMTS networks and considering the broad 3G coverage (more than 70% of the population), SFR mobile capital expenditures will decrease in 2009. The total amount of SFR industrial investments will nonetheless increase due to the progression of fixed capital expenditures, especially those dedicated to fibre deployment.
- 46 - 5. LITIGATION
5.1 SFR legal contingencies SFR is facing legal contingencies. All the proceedings for which resolution is pending in commercial courts and for which the management is in a position to determine the negative impact, are provisioned for in the financial statements as at 30 March (2009). The main legal contingencies are: (i) The lawsuits in which SFR is involved concern day to day business and subject matters relating to business litigation with clients and SFR distributors. The litigation relative to SFR distributors concern some resellers and distributors of SFR services who are not efficient and do not meet their targets and whose contract is therefore discontinued by SFR. After the termination by SFR, some of these distributors regularly try to have their contract be renamed by the Court either : as “Agent commercial” in order to obtain the indemnity defined by Law representing 2 years of commissions. And / Or as “salaried employee” in order to obtain the indemnity owed to employees in case of unfair dismissal. All, except one specific case, of these issues are being won by SFR in the courts : the judgements have refused to regard the SFR Distributors as “salaried employee” (only one have described our relationship as employment contract-CA PARIS). Besides, the judgements have, each time, considered that SFR contracts cannot be qualified as commercial agency contracts, with the exception of one specific case. SFR brought this case before the Court of Appeal of Paris. It is important to stress that in the previous litigations where the matter of the qualification of the SFR Distributors Contract was raised before its jurisdiction, the Court of Appeal of Paris refused to regard the Contract as a commercial agency contract. The case will be examined by the Court of Appeal in March 2009. (ii) Setnet sued SFR and Hewlett Packard (HP) for infringement. According to Setnet, SFR and HP did not declare the correct number of licences used in the mailing application that SETNET created. SFR and HP presented their response which is mainly based on the circumstance that the method to calculate the licences changed in the curse of the contract. The procedure is still pending before the Commercial court of Paris and a decision is unlikely to occur before mid of 2010. (iii) Patent Technology, an american company, brought SFR before District Court of Maryland (USA) for infringement. According to Patent Technology, SFR used their patents relative to international message exchange through internet without their authorization. Patent Technology did not evaluate their damages. SFR has successfully presented a motion to dismiss because SFR has not any activities in the US that would justify to be judged by the US Courts. This case is closed.
- 47 - iv) Les Choristes v./ Neuf Cegetel :
On June 6, 2005, Galatée Films and Pathé Renn Production summoned Neuf Cegetel and its CEO before the Criminal Chamber of the Paris TGI for aiding and abetting in the infringement of the film Les Choristes and the trademark of the same name. The producers considered that by putting their advertising banner on peer-to-peer sites enabling the pirated downloading of the film, the advertisers contributed to funding these sites and the development of piracy on the Internet. June 21, 2006: the Paris Criminal Court dismissed the charges. On June 30, 2006: Galatée Films and Pathé Renn Production (and the two parties bringing a civil action) lodged an appeal against the judgment. The Public Prosecutor also lodged a procedural appeal. In March 2009, the Court of Appeal confirmed the first jugement of dismissing the charges. (v) Prosodie c/ Neuf Cegetel : Commercial Court In December 2008, Prosodie has sued Neuf Cegetel asking for a good faith application of the contract arguing that the migration of some former clients was creating damages to Prosodie. Procedure is pending (vi) Jones Cyber Solution c/ SFR : Commercial Court JCS has sued SFR in January 2009 asking for the payment of the maintenance fees. Procedure is pending (vii) Ville de Paris c/ Neuf Cegetel Pending negociations on passages right prices did not succeed. Negotiation to be continued for the avoidance/diminution of the bills.
5.2 SFR legal actions SFR is also facing legal actions under competition law. Many of these lawsuits have been filed jointly against all the mobile telephone operators. Apart from the first one detailed below, SFR’s management is not in a position to determine the possible impact of these proceedings and therefore has not recorded any related provision as of June 30, 2008. The main legal actions are: (i) Procedure initiated by the UFC Que Choisir and by the DGCCRF against three French mobile phone operators: The Conseil de la Concurrence intervened on its own initiative on 28 August 2001 and made an address on 1 December 2004 to the three operators, notifying the two following charges: Monthly exchanges since 1997 of relevant information about the telephone market, with details on hard connections, profits, cancellations and client databases Freezing parts of the market concerning new connections, profits and problems in the period from 2000 to 2002.
- 48 - The Conseil de la Concurrence published its decision on the 1 December 2005, in which the three operators were condemned to pay a total amount of 534 million Euros. The resulting fine paid by SFR, which amounted to €220 million, was entered in the accounts as an expense and was paid during the 2005 fiscal year. SFR, as well as the other two operators, appealed the decision in February 2006. Final judgment of appeal was pronounced on December 2006 maintaining the terms and conditions of the initial judgment. SFR has decided to put the case to the Cour de Cassation in January 2007. This Court pronounced its judgement on 29 June 2007, confirming the decision of the Paris Court of Appeal concerning the market share but amending the issue concerning the information exchanged by operators. Therefore, the Paris Court of Appeal composed of different judges has pronounced its judgement on 2009 and has confirmed the illegal exchange information by operators and the amount already paid. SFR has decided to put again the case to the Cour de Cassation. (ii) Association Tenor (became Etna) v SFR and Cegetel, among others including France Telecom and Bouygues Telecom : The plaintiff filed a petition with the Conseil de la Concurrence in 1999 to counter certain practices used by the defendants concerning the pricing for calls from fixed units to mobiles, on offers which mixed fixed rate calls with mobile calls, and on the level of international surtaxes on the mobiles. The Conseil de la Concurrence reached a decision on the 14 of October 2004, condemning SFR for abuse of dominant position, and ordered them to pay a fine of 2 million Euros. SFR put in an appeal against this decision. The Paris Court of Appeal reached their conclusion on the 12 April 2005 and reversed the decision of the Conseil de la Concurrence on the grounds that there was not enough evidence of the alleged malpractice. On 29 April 2005 and 18 May 2005 respectively, Etna and the Minister of the Economy brought the case to the Cour de Cassation (French High Court). By judgement dated 10 May 2006, the Cour de Cassation overturned the decision by considering that the Court of Appeal should have checked if the “price scissoring” practices had the aim and effect of distorting competition. The matter has been sent back to the Court of Appeal for restatement. On 2 April 2008, the Court of Appeal rejected the conclusions of France Telecom and SFR and confirmed the fine of 2 million Euros against SFR. SFR and France Telecom have contested this decision before the Court de cassation (French High Court). In March 2009, the Court de Cassation reversed the decision of the Court of Appeal and sent back the case to the Court of Appeal of Paris. (iii) Neuf Cegetel v./ MINEFI (Minister of the Economy) – Paris Administrative Court
Paris Administrative Court of Appeal: further to a judgment of the Paris Administrative Court dated June 19, 2003, Neuf Cegetel and its subsidiaries disputed the validity of the management taxes invoiced by the ARCEP.
- 49 - On June 7, 2007: the Paris Administrative Court ordered the State to refund the sums paid by Neuf for the annual file administration tax for 2000.
On October 17, 2007: the State paid the principal amount due.
In May 2008: Neuf Cegetel requested the refund of the interest on arrears. Similar actions are also initiated for the management and control taxes.
On March 30, 2007: the Paris Administrative Court dismissed the claims made for 1998.
Neuf Cegetel lodged an appeal before the Paris Administrative Court. Neuf is not aware of the future timetable of the pending procedures.
(iv) Neuf Cegetel v./ French State – Universal Service
Neuf Cegetel and the operators which are members of the AFORST (Association Française des Opérateurs de Réseaux et de Services de Télécommunications) [French Association of Telecommunications Networks and Services Operators] disputed before the Paris Administrative Court the legality of the funding of the Universal Service on the grounds that it was not proved that the provision of the Universal Service constituted an undue burden for its provider, and the absence of transparency in the method of calculating the fees.
On March 1, 2007, the Paris Administrative Court ordered the State to refund the amounts of the contributions paid by Cegetel for 1998 to 2000.
The State lodged an appeal against this judgment and refused to refund the corresponding sums on the grounds that these contributions were allegedly paid pursuant to the decree of April 16, 2007, which Neuf Cegetel disputes.
In eight judgments of November 8, 2007, the Paris Administrative Court ordered the State to refund the total amount for the contributions to the Universal Services paid by four companies now absorbed by Neuf.
The State lodged an appeal against these decisions, except for one (Ventelo).
In March 2008, the Paris Administrative Court dismissed an appeal by Neuf Cegetel concerning the contribution for 2005.
(v) The Petition to the Conseil de la Concurrence by the UFC Que Choisir against three mobile phone operators: The referral on 24 November 2003, concerns a collective abuse of a dominant position by 3 mobile phone companies regarding tariffs relating to SMS (text messaging), this is considered by the UFC as being excessive. In his case we have an abatement of action from UFC… (vi) The Petition to the Conseil de la Concurrence by Bouygues Telecom against SFR and Orange: This petition presented in May 2004 concerns a collective abuse of a dominant position by SFR and Orange on the market of ‘B to B’ telecom services. This files is closed arising from the Bouygues Telecom’s abatement of action. (vii) The Petition to the Conseil de la Concurrence by Bouygues Telecom against SFR and Orange: This petition concerns the “price scissoring” practices of the defendants in relation with the unlimited calls proposed in their respective offers.
- 50 - The Conseil de la Concurrence made an address on 18 March 2008 to SFR and Orange to notify the above mentioned charge of “price scissoring”. SFR has presented its response. The case has been sent back to the Instruction on may 2009. (viii) The Petition to the Conseil d’Etat (French administrative High Court) by the UFC Que Choisir. UFC Que Choisir considers that the decision of the Arcep (French Telecom Regulator) fixing the prices of the call termination between French mobile operators are illegal because they would not be cost-oriented. The procedure is still pending before the Conseil d’Etat. (ix) The Petition to the Autorité de la concurrence by SFR. SFR considers that FT and the Football Ligue has settled illegal practices according to articles 81 and 82 of the Traitee. The first stage of procedure is pending. (x) Neuf Cegetel v./ Orange Sport (“Orange Foot”), France Telecom & LFP. Paris Commercial Court.
(x.i) Neuf Cegetel intervened, on its own initiative, in the proceedings brought by Free against Orange Sport, in the framework of an emergency proceedings (« Référé »), concerning the distribution of Orange Foot TV Channel. Free and Neuf Cegetel asked the Judge to consider Orange’s offer as a major disturbance and imminent damage for the market. Free and Neuf Cegetel argue that the subscription by a consumer to Orange Foot TV Channel is subjected to prior subscription to an Orange Internet subscription (subordinated sale: “vente subordonnée”). In its decision, dated 30 June 2008, the judge dismissed Free and Neuf Cegetel claims. SFR has decided to put the case to the Court de cassation
(x.ii) Further to this decision, Free and Neuf Cegetel brought a legal action on the merits against Orange Sport and France Telecom before Paris Commercial Court.
The first hearing took place on 26 November 2008. Next dates of hearings are as follows: 10 December 2008: communication of writs and evidences of France Telecom, Orange Foot and LFP; 7 January 2009: hearings on the merits before the Court (3 magistrates). (xi) France Telecom c/ 9 Cegetel : France Telecom sues 9C for the payment of an amount due to services provided according to the interconnection agreement The two procedures are still pending to the Commercial Court of Paris
5.4 Tax audit A tax audit carried out by the French tax authorities started on June 3, 2009 for the period beginning 1st January 2006 and ending on 31 December 2008.
- 51 - TAXATION
The following summary is of a general nature and is included herein solely for information purposes. It is based on the laws presently in force in Luxembourg and France, though it is not intended to be, nor should it be construed to be, legal or tax advice. Prospective investors in the Bonds should therefore consult their own professional advisers as to the effects of state, local or foreign laws, including Luxembourg and French tax law, to which they may be subject.
EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income (the "Directive"), each Member State is required, from 1 July 2005, to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident in that other Member State; however, for a transitional period, Austria, Belgium and Luxembourg may instead apply a withholding system in relation to such payments, deducting tax at rates rising over time to 35%. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.
Also with effect from 1 July 2005, a number of non-EU countries, and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident in a Member State. In addition, the Member States have entered into reciprocal provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident in one of those territories.
On 13 November 2008 the European Commission published a detailed proposal for amendments to the Directive, which included a number of suggested changes. The European Parliament approved an amended version of this proposal on 24 April 2009. If any of those proposed changes are made in relation to the Directive they may amend or broaden the scope of the requirements described above.
Luxembourg Taxation
Luxembourg non-residents
Under Luxembourg tax law currently in effect and subject to the application of the Luxembourg laws dated 21 June 2005 (the "Laws") implementing the Directive and several agreements concluded between Luxembourg and certain dependent territories of the European Union, there is no withholding tax on payments of interest (including accrued but unpaid interest) made to Luxembourg non-resident Bondholders.
Under the Directive and the applicable law, a Luxembourg based paying agent (within the meaning of the Directive) is required since 1 July 2005 to withhold tax on interest and other similar income paid by it to (or under certain circumstances, to the benefit of) an individual resident in another Member State, unless the beneficiary of the interest payments elects for an
- 52 - exchange of information. The same regime applies to payments to individuals or Residual Entities resident in certain dependent territories.
The withholding tax rate was initially 15 per cent. until 30 June 2008, increasing steadily to 20 per cent. as from 1 July 2008 and to 35 per cent. as from 1 July 2011. The withholding tax system will only apply during a transitional period, the ending of which depends on the conclusion of certain agreements relating to information exchange with certain third countries.
Luxembourg residents
A 10 per cent. withholding tax has been introduced, as from 1 January, 2006 on interest payments made by Luxembourg paying agents (defined in the same way as in the Directive) to Luxembourg individual residents. Only interest accrued after 1 July, 2005 falls within the scope of this withholding tax. Income (other than interest) from investment funds and from current accounts provided that the interest rate is not higher than 0.75% are exempt from the withholding tax. Furthermore, interest which is accrued once a year on savings accounts (short and long term) and which does not exceed €250 per person and per paying agent is exempted from the withholding tax.
French Taxation
The Directive was implemented in French law by by Article 242 ter of the French Code général des impôts and Articles 49 I ter to 49 I sexies of the Schedule III to French Code général des impôts. Article 242 ter of the French Code général des impôts, imposes on paying agents based in France an obligation to report to the French tax authorities certain information with respect to interest payments made to the beneficial owner in another Member State, including, among other things, the identity and address of the beneficial owner and a detailed list of the different categories of interest paid to that beneficial owner.
The Bonds, which constitute obligations under French law, are deemed to be issued outside the Republic of France for the purpose of Article 131 quater of the French Code général des impôts as construed by the French tax administration's circular no. 5 I-11-98 dated 30 September 1998 and rulings (rescrits) no. 2007/59 (FP) dated 8 January 2008 and no. 2009/23 (FP) dated 7 April 2009. Consequently, payments of interest and other revenues paid by the issuer of the Bonds with respect to the Bonds benefit from the exemption from the withholding tax set out under Article 125 A III of the French tax code. Accordingly, such payments do not give the right to any tax credit from any French source.
- 53 - SUBSCRIPTION AND SALE Underwriting Arrangements
Société Générale (the "Lead Manager") has, pursuant to a Subscription Agreement dated 7 July 2009 (the "Subscription Agreement"), agreed with the Issuer, subject to the satisfaction of certain conditions, to procure subscription and payment for, failing which to subscribe and pay for, the Bonds at a price equal to 100 per cent. of the principal amount of the Bonds, less any applicable commission. The Issuer will also pay certain costs incurred by it and the Lead Manager in connection with the issue of the Bonds.
The Lead Manager is entitled to terminate the Subscription Agreement in certain limited circumstances prior to the issue of the Bonds. The Issuer has agreed to indemnify the Lead Manager against certain liabilities in connection with the offer and sale of the Bonds.
Selling Restrictions
General
Except for action in connection with the listing of the Bonds on the Luxembourg Stock Exchange, no action has been or will be taken in any jurisdiction by the Lead Manager or the Issuer that would, or is intended to, permit a public offering of the Bonds, or possession or distribution of the Prospectus (in proof or final form) or any other offering or publicity material relating to the Bonds, in any country or jurisdiction where action for that purpose is required. Each of the Lead Manager and the Issuer will comply with all applicable laws and regulations in each jurisdiction in or from which it may acquire, offer, sell or deliver Bonds or have in its possession or distributes the Prospectus or any such other material. The Lead Manager will also ensure that no obligations are imposed on the Issuer in any such jurisdiction as a result of any of the foregoing actions. Accordingly, the Lead Manager has agreed that it will not, directly or indirectly, offer, sell or deliver any Bonds or distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations and all offers and sales of Bonds by it will be made on the same terms. The Issuer and the Lead Manager will have no responsibility for, and the Lead Manager will obtain any consent, approval or permission required by it for, the acquisition, offer, sale or delivery by it of Bonds under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it makes any acquisition, offer, sale or delivery. The Lead Manager is not authorised to make any representation or use any information in connection with the issue, subscription and sale of the Bonds other than as contained in, or as is consistent with the contents of, the Prospectus (in final form) or any amendment or supplement to it, any publicly available information or any other information supplied by the Issuer to the Lead Manager specifically for the purpose of being used in connection with the issue, subscription and sale of the Bonds.
Legality of Purchase
Neither the Issuer, the Lead Manager nor any of their respective affiliates has or assumes responsibility for the lawfulness of the acquisition of the Bonds by a prospective investor of the Bonds, whether under the laws of the jurisdiction of its incorporation or the jurisdiction in
- 54 - which it operates (if different), or for compliance by that prospective investor with any law, regulation or regulatory policy applicable to it.
Republic of France
Each of the Lead Manager and the Issuer has represented and agreed that (i) it has not offered or sold and will not offer or sell, directly or indirectly, the Bonds to the public in the Republic of France and (ii) offers and sales of Bonds in the Republic of France will be made only to (a) persons providing investment services relating to portfolio management for the account of third parties (personnes fournissant le service d'investissement de gestion de portefeuille pour compte de tiers) and/or (b) qualified investors (investisseurs qualifiés) other than individuals referred to in article D.411-1 II-2° of the French Code monétaire et financier, all as defined in, and in accordance with, articles L.411-1, L.411-2 and D.411-1 to D.411-3 of the French Code monétaire et financier. In addition, each of the Lead Manager and the Issuer has represented and agreed that it has not distributed or caused to be distributed and will not distribute or cause to be distributed in the Republic of France this Prospectus or any other offering material relating to the Bonds other than to investors to whom offers and sales of Bonds in the Republic of France may be made as described above.
United States
The Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent registration or pursuant to an exemption from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
The Lead Manager has represented, warranted and agreed that it will offer or sell the Bonds, (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering and the date of issue of the Bonds, only in offshore transactions to investors who are not U.S. persons in accordance with Rule 903 of Regulation S of the Securities Act and has agreed that, at or prior to confirmation of sale of Bonds, it will have sent to each distributor, dealer or person receiving selling concession, fee or other remuneration that purchases Bonds from it during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Bonds within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after the commencement of the offering, an offer or sale of Bonds within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.
United Kingdom
The Lead Manager has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the "FSMA")) received by it in connection with the issue or sale of the Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
- 55 - (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.
Italy
The offering of the Bonds has not been, nor will be, registered with the Commissione Nazionale per le Società e la Borsa ("CONSOB") in the Republic of Italy (“Italy”) pursuant to Legislative Decree No. 58 of February 24, 1998 as amended (the "Financial Services Act") and to CONSOB Regulation No. 11971 of May 14, 1999 as amended (the "Issuers Regulation"). The Lead Manager has represented and agreed that it has not offered, sold or transferred, and will not offer, sell or transfer, directly or indirectly, in an offer to the public any Bonds or distribute any copy of the Prospectus or any other document relating to the Bonds in Italy, unless in accordance with all Italian securities, tax and exchange control and other applicable laws and regulations. Accordingly, the Lead Manager has represented and agreed that it will not offer, sell or transfer any Bonds or distribute copies of this Prospectus or any other document relating to the Bonds in Italy, except:
(1) to "Qualified Investors" (investitori qualificati) as defined in Article 34-ter, paragraph 1(b), of the Issuers Regulation; or
(2) in any other circumstances where an express exemption from compliance with the public offering restrictions applies, pursuant to, and in compliance with, the conditions set out by Article 100 of the Financial Services Act and its implementing regulations, including Article 34-ter, first paragraph, of the Issuers Regulation.
The Lead Manager has also represented and agreed that any such offer, sale or transfer of the Bonds or distribution of copies of this Prospectus or any other document relating to the Bonds in Italy under (1) or (2) above must, and will, be effected in accordance with all relevant Italian securities, tax and exchange control and other applicable laws and regulations and, in particular, will be made: (a) by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with the Financial Services Act, the Issuers Regulation, CONSOB Regulation No. 16190 of October 29, 2007, as amended, and Legislative Decree No. 385 of September 1st, 1993, as amended (the "Banking Law"); and
(b) in compliance with any other applicable notification requirement or limitation which may be, from time to time, imposed by CONSOB, the Bank of Italy and/or any other Italian authority.
Any investor purchasing the Bonds in the offering is solely responsible for ensuring that any offer or resale of the Bonds it purchased in the offering occurs in compliance with applicable Italian laws and regulations. No person resident or located in Italy other than the original addressees of this Prospectus may rely on the Prospectus or its content.
- 56 - GENERAL INFORMATION
Corporate Authorisations
The issue of the Bonds was authorised by a decision of the Conseil d’Administration dated 19 December 2008 pursuant to a resolution of the Assemblée Générale of the Issuer adopted on 13 September 2007.
Listing and Admission to trading of the Bonds
Application has been made for the Bonds to be admitted to the official list and traded on the Regulated Market of the Luxembourg Stock Exchange in accordance with the Prospectus Directive (as defined above). The estimated total expenses relating to the admission to trading of the Bonds is €2,600. The Prospectus shall be available on the website of the Luxembourg Stock Exchange (www.bourse.lu).
Clearing of the Bonds
The Bonds have been accepted for clearance through Euroclear France, Euroclear and Clearstream, Luxembourg under the following reference numbers:
ISIN: FR0010775304
Common Code: 043707167
Yield
The yield of the Bonds is 5 per cent.
No Material Adverse Change
Except as disclosed in this Prospectus, there has been no material adverse change in the prospects of the issuer since 31 December 2008.
No Significant Change
Except as disclosed in this Prospectus, there has been no significant change in the trading and financial position of the Issuer since 31 December 2008.
No Material Interest
Save as discussed in “Subscription and Sale” so far as the Issuer is aware, no person involved in the offer of the Bonds has an interest material to the offer.
Auditors
Ernst & Young et Autres and KPMG Audit are the statutory auditors of SFR. Ernst & Young et Autres and KPMG Audit have audited, and rendered unqualified reports on, the consolidated financial statements of SFR as at, and for the two years ended, 31 December 2008 and
- 57 - 31 December 2007. KMPG Audit and Ernst & Young et Autres are both members of the Compagnie Nationale des Commisaires aux Comptes.
Documents Available
For so long as the Bonds are admitted to trading on the regulated market of the Luxembourg Stock Exchange, the following documents or copies thereof may be available free of charge during usual business hours on any day (except Saturdays and public holidays) at the specified offices of the Paying Agents: the statuts of the Issuer, the Fiscal Agency Agreement, the Annual Report 2008 including the audited consolidated financial statements of the Issuer as at, and for the year ended, 31 December 2008, and the related notes and audit report, the Financial Report 2008, the consolidated and non-consolidated financial statements of SFR as at 31 December 2008, the Financial Report 2007, the consolidated and non-consolidated financial statements of SFR as at 31 December 2007. The Prospectus, the Annual Report 2008, the Financial Report 2007 and the Financial Report 2008 of the Issuer shall be available on the website of the Luxembourg Stock Exchange, www.bourse.lu.
- 58 - REGISTERED OFFICE OF THE ISSUER
Société Française du Radiotéléphone – SFR 42, avenue de Friedland 75008 Paris
STATUTORY AUDITORS OF THE ISSUER
Ernst & Young et Autres KPMG Audit 11, rue Ybry A department of KPMG S.A. 92576 Neuilly-sur-Seine Cedex 1, cours Valmy 92923 Paris – La Défense Cedex
LEGAL ADVISERS
To the Issuer To the Lead Manager
Franck Rohard Gide Loyrette Nouel A.A.R.P.I. Business, Operator & Corporate 26, cours Albert 1er 75008 Paris General Counsel France
FISCAL AGENT, PRINCIPAL PAYING AGENT, LUXEMBOURG PAYING AGENT AND LUXEMBOURG LISTING AGENT
Société Générale Bank & Trust 11, avenue Emile Reuter 2420 Luxembourg
PARIS PAYING AGENT
Société Générale 29, boulevard Haussmann 75009 Paris
- 59 -